Bulgaria: GDP growth wanes in Q3
GDP growth waned to 3.3% year on year on a seasonally adjusted basis in the third quarter, from 4.6% in the second quarter. Q3’s reading marked the weakest since Q4 2020 and came in marginally below the flash estimate of 3.2% annual growth. The moderation was largely due to a high base effect (Q3 2021: +8.0% yoy), slower growth in public spending and a drop in gross capital formation.
Domestically, total investment shrank 3.6% year on year in Q3, down from Q2’s 13.5% expansion. Despite a softer fixed investment drop of 6.1% (Q2: -9.5% yoy), a steep reduction in inventories likely depressed the reading and weighed on overall growth. Moreover, government consumption growth was plagued by political uncertainty, slowing to 1.6% (Q2: +6.7% yoy). More positively, private consumption growth remained stable at 3.7% year on year in Q3. Consumers proved resilient against the highest inflation since 1998, supported by a series-low unemployment rate, fuel subsidies and tax breaks.
Meanwhile, the external sector contributed to growth: Exports of goods and services growth hit an over one-year high of 11.1% in the third quarter (Q2: +8.5% yoy). Conversely, imports of goods and services expanded at a weaker pace of 9.3% in Q3 (Q2: +12.4% yoy).
At the same time, underlying momentum slowed marginally: On a seasonally adjusted quarter-on-quarter basis, economic growth edged down 0.6% in Q3, from the previous quarter’s 0.8% increase.
Looking ahead, the economy should have cooled further but expanded at a robust pace compared to regional peers in Q4. Although consumer prices inched down in the first two months of the quarter, they remained elevated and likely strained household budgets.
Additionally, there have been two failed attempts to form a governing coalition following the October snap general elections. The parliamentary crisis is putting at risk both the adoption of policies to tackle the cost-of-living and energy crises and the implementation of reforms which are key for unlocking the EU’s Recovery and Resilience Fund and the country’s planned adoption of the euro on 1 January 2024. These dynamics could jeopardize growth prospects in the quarters ahead.