Bulgaria's largest lender UniCredit Bulbank said that it expects the country's gross domestic product (GDP) to increase by a real 3.6% in 2022 and by 4.3% next year as severe, longer-lasting supply bottlenecks and higher-than-expected inflation are likely to slow the pace of growth
In its September 2021 macroeconomic update, UniCredit Bulbank said that Bulgaria's real GDP is forecast to grow by a real 3.9% in 2022.
Bulgaria's economy is estimated to have expanded by 3.6% last year, the bank said in its January macroeconomic update.
"We expect average CPI inflation to rise to 6% year-on-year in 2022 before falling back to 3% in 2023. We still think that high inflation mostly reflects temporary factors, including elevated energy prices, supply bottlenecks and base effects," the bank also said.
However, inflation has recently become more broadly based and is likely to last longer, according to UniCredit Bulbank. This is because supply bottlenecks, which have weighed on production and pushed up core prices substantially, are expected to normalise back to pre-pandemic levels only in 2023, significantly later than previously expected, it added.
Inflation in Bulgaria is likely to be perhaps even higher than in the rest of the Central and Eastern Europe (CEE) region because of the rapid increase in food prices and higher commodity prices, according to the bank analysts.
According to UniCredit Bulbank, the increase in food prices is likely to prove more persistent because an ongoing shortage of fertilisers is likely to cut harvest volumes in 2022. "If this scenario materializes, headline inflation will increase to a larger degree in Bulgaria than in the rest of the CEE region, because food accounts for the largest share of Bulgaria’s CPI basket," the bank noted.
The pass-through of higher commodity prices to consumer prices in Bulgaria is likely to be amplified by the fact that the country has a relatively large number of sectors that are characterised by elevated concentration, which suggests that Bulgaria’s share of companies with large pricing power is significant as well, UniCredit Bulbank also said.
"The outlook for the economy will continue to depend on how the coronavirus pandemic develops. The Omicron variant of COVID-19 is adding to the headwinds in the short term and is forecast to dampen economic activity in 2022," the bank said.