Growth to slow but consumer spending remains robust


MEDIUM RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD65bn (World ranking 74, World Bank 2018)
Population 7.02mn (World ranking 104, World Bank 2018)
Form of state Parliamentary Democracy
Head of government Boyko BORISOV (Prime Minister)
Next elections 2021, legislative
  • EU membership and good international relations
  • Relatively low systemic political risk
  • Currency board has withstood global turbulences since 2008 and BGN is currently not overvalued
  • History of prudent fiscal policies
  • Current account surpluses since 2013
  • Generally adequate business environment
  • Slow progress on EU-required judicial reform and anti-corruption measures
  • Public discontent about living standards
  • High external debt burden
  • Markedly rising corporate insolvencies since 2018 (+9% in 2018, +10% in January-August 2019)

Losing momentum

Real GDP growth strengthened to an average +4.2% y/y in the first half of 2019 from +3.1% in full-year 2018. However, quarterly data already indicate a downtrend from +4.5% y/y in Q1 to +3.8% y/y in Q2. The latter was primarily driven by a strong +7.4% y/y increase in consumer spending, boosted by rapid wage growth and declining unemployment. Public spending expanded by +1.4% y/y in Q2 while capital spending weakened sharply, with fixed investment up by just +0.9% y/y and inventories subtracting -2.5pp from Q2 growth due to heavy destocking, likely reflecting an expected slowdown by businesses. Net exports contributed +1.3pp to Q2 growth, but this was not a sign of economic strength but rather a result of real imports dropping (-5.1% y/y) more sharply than exports (-3% y/y). Monthly data suggest that the downtrends in external trade have likely continued in Q3, reflecting the impact of softening global and Eurozone demand. Meanwhile, industrial production growth continued to weaken, from +3.5% y/y in Q1 to -0.1% y/y in Q2 and an estimated -1.7% y/y in July-August. Overall, we expect Bulgaria’s economy to further lose momentum in H2 and forecast full-year GDP growth of +3.5% in 2019.

For 2020, we project economic growth to slow down further to about +2.7%. Domestic demand should remain the main growth driver but also lose some impetus as there is limited room for further improvement in employment. External trade activity is expected to recover to moderate expansion rates. Investment activity is likely to remain subdued.

The trend in the number of corporate insolvencies has reversed, increasing by +9% in 2018 (476 cases) and +10% in the first eight months of 2019. We forecast about +10% for 2019 as a whole, as well as for 2020.

Prudent economic policies

Bulgaria's currency board (BGN1.95583:EUR1) continues to appear stable. The real effective exchange rate indicates that Bulgaria enjoys relative com­pet­itiveness. Moreover, foreign exchange (FX) reserves continue to cover the monetary base (a requirement for a currency board) clearly. However, the currency board largely neutralizes monetary policy.

Headline consumer price inflation increased from an average 2.1% in 2017 to 2.8% in 2018 and 3.1% in the first nine months of 2019, thereby reaching temporary peaks of 3.7% y/y in October 2018 and in April 2019. Services inflation due to rapid wage growth and rising food prices contributed to the headline over the past two years while energy inflation caused some volatility. As temporary factors have gradually faded and oil prices have remained moderate, headline inflation fell to 2.3% y/y in September 2019. We forecast average price increases of 3% in 2019 and 2.6% in 2020.

Bulgaria’s public finances are unproblematic. The country has had a long-lasting commitment to fiscal prudence, reflected in many years of fiscal surpluses or acceptable deficits. In 2014, the resolution of the country’s banking crisis had a fiscal cost, for example the government replenished the State Deposit Guarantee Fund, which had been depleted by the failure of Corporate Commercial Bank. The fiscal deficit rose to -5.5% of GDP. However, the shortfall narrowed rapidly in 2015 and shifted into a small surplus of +0.1% of GDP in 2016, which widened to +1.8% in 2018. We expect the annual surplus to narrow to below +1% in 2019-2020, owing to slowing growth and some fiscal stimulus measures. Total public debt stood at 22% of GDP in 2018, a very favorable ratio by EU standards.

External position is favorable overall

Bulgaria’s current account balance has been positive since 2013. The external surplus surged to +5.4% of GDP in 2018 and further to +7% of estimated GDP in the first eight months of 2019. However, the increase of the surplus in 2019 so far was mainly due to a -1.2% y/y drop in nominal imports while exports still grew +3.8% y/y. In the previous two years the trade dynamics had been strong for both exports and imports.

Meanwhile, gross external debt in Bulgaria declined from the peak of EUR39bn in March 2015 to EUR33bn at the end of 2018 before edging up slightly to EUR34bn in August 2019. In relation to GDP, the latter accounted for approximately 58%. While this ratio is still relatively high compared to the median of all emerging markets, it is down from 108% in 2009 and Bulgaria has now one of the lowest ratios among the 11 EU member states in Central and Eastern Europe.

Bulgaria’s FX reserves have increased substantially since end-2013 and stood at EUR23.5bn in September 2019, a comfortable level with regard to import cover (more than seven months). Moreover, in other terms, reserves now cover about 145% of the estimated external debt pay­ments falling due in the next 12 months, a favorable ratio and a significant and steady improvement from 80% five years ago.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Germany 12%
12% Germany
Romania 9%
9% Russia
Italy 9%
9% Turkey
Turkey 7%
7% Italy
Greece 6%
7% Romania

Trade structure by product

(% of total)

Exports Rank Imports
Electrical machinery, apparatus and appliances, n.e.s. 9%
9% Petroleum, petroleum products and related materials
Non-ferrous metals 9%
6% Electrical machinery, apparatus and appliances, n.e.s.
Petroleum, petroleum products and related materials 7%
6% Road vehicles
Articles of apparel & clothing accessories 6%
5% Metalliferous ores and metal scrap
Cereals and cereal preparations 5%
4% Medicinal and pharmaceutical products

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings


Euler Hermes

Economic Research Team


Manfred Stamer

Senior Economist for the Middle East and Developing Europe




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