OECD Economic Outlook, Volume 2025 Issue 1

Bulgaria

GDP is expected to increase by 2.6% in 2025 and 2.3% in 2026 driven by household consumption growth, supported by ongoing high income and credit growth, and higher government investment with the rollout of EU funds. Exports will grow slowly reflecting weaker growth in other EU economies. Headline inflation has been rising and wage pressures remain elevated. Sustained wage growth risks hindering the moderation of inflation.

Interest rates have followed those in the euro area, under the currency board, but transmission to the Bulgarian economy is slow and incomplete, contributing to a household credit boom. Further macroprudential measures should be deployed. Bulgaria has requested an assessment of its readiness to join the euro area, which is assumed to occur in January 2026. The fiscal deficit is set to remain consistent with the 3% of GDP threshold. A more business-friendly administrative environment would help to boost investment, while more effective activation policies and measures to tackle informality would help to make better use of Bulgaria’s labour force.

Growth has been driven by consumption

GDP increased by 2.8% in 2024 with strong household consumption driven by wage increases, credit growth and higher government transfers. Both public and private investment have been weak due to political uncertainty and low absorption and delay of EU funds. Industrial activity fell below its pre‑pandemic levels in the first three months of 2025 reflecting continued declines in mining and energy production. Manufacturing output continued its downward trend, though it remained slightly above pre‑pandemic levels. Services and construction activity also remained above pre-pandemic levels. Overall, in the first quarter of 2025, GDP increased by 0.6% (non-annualised). Annual headline inflation increased to 3.5% in April 2025 from 2.4% in April 2024. Unemployment has been declining in tandem with the pick-up in economic activity.

Bulgaria

Source: OECD Economic Outlook 117 database.

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Bulgaria: Demand, output and prices

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Export growth has been held back by weak demand in key EU markets, particularly Germany. Imports recovered more than expected in 2024, supported by domestic consumption, and outpaced exports, weighing on the current account balance. Recent changes in global trade policies and higher US tariffs on imports of goods from the EU will have a modest impact on trade, GDP growth and inflation, largely through spillover effects from weaker EU demand as direct trade linkages with the United States are weak.

Interest rates will stay low, while the budget deficit will remain at 3% of GDP

Interest rate developments will continue to broadly follow euro area monetary policy given the currency board regime. However, transmission of monetary policy to domestic deposit and lending rates has been slow and incomplete due to high liquidity and stiff competition in the banking sector, leading to lending rates that are below euro area norms and strong domestic credit growth. Bulgaria requested a convergence report assessing its readiness for euro adoption in January 2026. Fiscal policy is set to meet the 3% of GDP EU ceiling for the budget deficit. The government may need to make spending adjustments relative to the budget if efforts to boost VAT revenue collection fall short, given planned strong spending in public sector salaries, minimum wages, pensions and social benefits.

GDP growth will remain relatively strong

Growth is projected to remain strong at 2.6% in 2025 and 2.3% in 2026. Private consumption will continue to be boosted by low unemployment, ongoing positive gains in real incomes and domestic credit growth. The rollout of currently blocked EU funds and an improved implementation of existing EU projects are expected to increase public sector investment. Export growth will be more subdued due to challenges in key export markets, while imports will be strong, driven by consumption and investment growth, increasing the current account deficit. Inflation is set to increase to 3.8% in 2025, following strong readings at the beginning of 2025 due to higher food prices, excise and VAT rates as well as household utility prices. Higher minimum wages coupled with persistent labour shortages will keep wage pressures elevated. Strong wage growth due to minimum wage and pensions indexation mechanisms risks high and persistent inflation while lower revenue collection relative to budget expectations risks widening the budget deficit.

More prudent fiscal policy and a business-friendly investment climate are needed

A modest fiscal consolidation is warranted to help moderate domestic demand and price pressures, and manage long-term spending pressures from ageing, climate and security needs. Reforming the current minimum wage and pension indexation mechanisms to slow the pace of growth in labour costs and government spending would support price stability. A more business-friendly investment climate with lower cost of doing business and reducing perceptions of corruption would attract more capital, domestic and foreign. Bringing more people into the workforce, alongside improvements in labour quality, would strengthen investor confidence in the availability of skilled workers and the effective utilisation of their investment. Improving digital and road infrastructure would enhance the prospective return on investment.