Economy records best reading since Q1 2023 in the third quarter

Economy accelerates but falls short of market expectations: According to a flash reading, the economy gained steam in Q3, with GDP growth edging up to 2.2% year on year (Q2: +2.1% yoy). The improvement was the fastest in six quarters and stemmed from quicker consumption growth; it was in line with our Consensus. On a seasonally adjusted quarter-on-quarter basis, economic growth fell to 0.5% in Q3 from the previous quarter's 0.6% increase, marking the joint-slowest expansion since Q3 2023.

Consumption fuels momentum: Looking at preliminary data, final consumption rose by 4.6% in Q3, up from Q2’s 4.3% increase. In contrast, fixed investment contracted by 4.9% in the quarter (Q2: -2.0% yoy). On the external front, exports of goods and services decelerated to 0.1% in Q3 (Q2: +0.5% yoy), and imports of goods and services rose 2.9% in the quarter (Q2: +4.1% yoy).

GDP outlook: In the upcoming quarters, GDP growth is forecast to rise from Q3. Consequently, 2025’s full-year economic growth will outpace both 2024’s projection and the prior 10-year average of 2.7% on accelerations in fixed investment and exports. ECB rate cuts and strengthening EU demand will provide key tailwinds to activity. However, both private and public spending will decelerate. Downside risks stem from weaker-than-expected EU activity and Bulgaria’s disproportionate exposure to trade and security policy changes under Trump’s presidency in the U.S.

Panelist insight: EIU analysts commented on the outlook: “We expect a small recovery in export growth in 2025 as demand gradually picks up in Bulgaria's main EU trading partners. However, the election of Mr Trump as US president threatens to further curb growth in these main export markets owing to a likely rise in US import tariffs. After slowing in 2024 amid low take-up of EU funds, we expect gross fixed investment growth to pick up in 2025. However, the absence of a stable government (which is likely to persist until at least the second quarter of 2025) threatens to continue delaying the disbursement of EU funds, and could lead to weaker than expected public investment.”

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