· Growth of 1.84% last year: higher than most EU countries
· Average wages are once again growing faster than inflation
· Inflation down again. The prices of restaurants and hotels, healthcare and education are growing the fastest
Analyzing the latest data from NSI and Eurostat, UBB comments on key trends in the country’s economy. The bank’s analysts report that in the fourth quarter of 2023, the Bulgarian economy grew in real terms by 1.6% compared to the same period of 2022, according to the smoothed preliminary data of the NSI.
“The reason for the lower growth was the tendency to slow down growth in the Eurozone, which materialized as a result of the ECB’s restrictive monetary policy. In particular, the largest trade partner of Bulgaria – Germany, fell into a technical recession, which in itself also had an impact on the slowdown of economic activity in our country. According to the data available so far, the Bulgarian economy actually increased by 1.846% last year, against our forecasted growth of 1.9%” commented the chief economist of UBB, Dr. Emil Kalchev.
In the fourth quarter of 2023, economic activity was driven by final consumption, which grew by 2.6% (85.4% relative share in GDP) compared to the same quarter of 2022. Against this background, investment recorded an increase of 3.7% (18.1% relative share) . Net exports for the quarter were negative, with annual exports falling by -1.9% and imports contracting by -4.4%.
“The outlook for the economy in 2024 will continue to depend on trends in the Eurozone, as well as being influenced by specific national factors. The most likely scenario for the Eurozone is the so-called “soft landing” or declining inflation to 2.1% with weak growth of 0.5% for 2024. Against this background, Bulgaria’s economic position looks better. Our expectations are that growth here will reach 2.3% with falling average inflation to 4.2%. predicted Kalchev.
Against the background of persistent unemployment of 4.3%, incl. as of December 2023, the average monthly wage increased by 11.6% in the fourth quarter of last year. “We take this result as a signal of normalization in the wage dynamics, which reached +15.9% in the third quarter. We expect a “calming down” of wages, the growth of which exceeded that of inflation in recent years. The main factors driving wages up, along with inflation, are an overly tight labor market characterized by low supply of skilled labour, state policy and the catch-up process within the EU. In turn, rapidly growing wages make it difficult for the economy to be competitive, which has already triggered a market mechanism for their normalization.” explained Dr. Kalchev.
Price growth continued to slow down in January 2024 as well. Thus, harmonized inflation decreased to 4.0% (compared to December of this year). In turn, core inflation (excluding food and fuel) followed the same trend, reaching 4.7%. “Restaurants and hotels, health care and education proved to be the fastest growing prices towards the end of 2023.”, concluded Emil Kalchev.
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