Bulgaria Nears Eurozone Inflation Criterion, European Commission Forecasts

World » EU | May 15, 2024, Wednesday // 17:28
Bulgaria: Bulgaria Nears Eurozone Inflation Criterion, European Commission Forecasts @Wikimedia Commons

The European Commission anticipates that Bulgaria will narrowly approach meeting the inflation criterion required for entry into the Eurozone, although it may not fully satisfy it.

In its latest spring economic forecast released on Wednesday, the Commission noted that Bulgaria's inflation stood at 3.1% as of March, slightly above the Eurozone average of 2.4%. To meet the criterion, Bulgaria's inflation must align closely with that of the three least appreciating countries. The forecast also predicts a notable increase in the budget deficit, rising from 1.9% to 2.8% of GDP, alongside an economic growth rate of 1.9%.

The inflation forecast remains consistent with that made in February, predating the unexpected fall of the government, which added to the country's instability. The Commission's analysis attributes the outlook for lower inflation to various factors, including projected declines in aggregate wages, limited increases in import prices, and policy decisions such as reductions in drug co-payments and the expiration of reduced VAT measures for certain services.

The rise in the budget deficit is expected to result from increases in pensions and salaries, only partially offset by state treasury revenues. Additionally, the loss of energy support, estimated at 0.8% of GDP, will contribute to the deficit increase.

While EU fund absorption is anticipated to decrease after peaking in 2023, the Commission expects some positive impact from the implementation of investments under the recovery plan, albeit with significant delays. Public investment overall is forecasted to decline in 2024.

Looking ahead to next year, the Commission predicts inflation of 2.6%, economic growth of 2.9%, and a slight reduction in public indebtedness. The analysis also foresees a continued uptrend in the budget deficit in 2025, reaching 2.9% of GDP under current policies.

Despite these challenges, the Commission remains optimistic about Bulgaria's ability to moderately increase the implementation of the recovery plan, which could bolster public investments and economic activity.

The economic outlook for the European economy presents a mixed picture, with private consumption expected to drive growth, but with significant savings propensities dampening the pace of expansion. Investment growth is slowing, primarily due to negative trends in housing construction, although lending conditions are expected to improve.

Inflation is projected to decline gradually, reaching 2% by 2025, with wage growth also beginning to slow alongside falling prices. Economic Commissioner Paolo Gentiloni expressed cautious optimism, stating that "the worst is behind us" and highlighting signs of recovery in the EU economy, with expectations for a gradual acceleration of growth in the coming years.

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Tags: EU, Eurozone, economy, Bulgaria

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