Bulgaria: Economic growth ticks up in Q1
According to a second release, GDP growth improved to 2.3% year on year on a seasonally and working-day adjusted basis in the first quarter, from 2.2% in the fourth quarter of last year and from the 2.0% growth moderation reported in the flash release.
On the domestic front, the acceleration in GDP was buoyed by faster growth in fixed investment, which came in at 1.8% in Q1 (Q4 2023: +0.5%). In contrast, consumption growth slowed in Q1: Private spending growth fell to an over two-year low of 2.9% (Q4 2022: +4.3% yoy), while public spending rose 1.1% (Q4 2022: +4.0% yoy).
The external sector also lost stride in the quarter: Exports of goods and services increased 2.3% on an annual basis in the first quarter, which was below the fourth quarter’s 8.9% expansion. In addition, imports of goods and services deteriorated, contracting 2.3% in Q1 (Q4 2022: +9.6% yoy), marking the worst performance in over two years.
On a seasonally adjusted quarter-on-quarter basis, economic growth eased to 0.5% in Q1, compared to the previous quarter’s 0.6% expansion. Q1’s reading marked the lowest in a year.
Looking ahead, economic growth will likely stabilize at a lower year-on-year pace through Q4 2023. A looser labor market, weaker wage growth and higher interest rates are seen eroding private spending this year. Meanwhile, the lull in activity across the EU will hinder trade growth. The absorption of EU funds will support investment, however. The recent government formation—which put an end to a protracted political crisis—bodes well for the implementation of stalled reforms necessary for unlocking additional EU funding and paving the way to the Eurozone and the Schengen area, ultimately supporting the country’s growth prospects.
Analysts at the EIU commented on the outlook:
“We forecast that private consumption will slow, which will represent the biggest drag on overall growth. Although we expect inflation to moderate substantially this year, consumer confidence will remain low, especially amid stagnating real wage growth. The gross national savings rate will also decline from an estimated 20.1% in 2022 to 17.7% this year.”