The latest assessment from the Organisation for Economic Co-operation and Development suggests that Bulgaria will maintain solid economic momentum this year, with GDP expected to rise by around 3%. According to the OECD’s new Global Economic Prospects report, growth will moderate in the following years, easing to 2.6% in 2026 and to 2.4% in 2027.
The analysis highlights that household spending and public-sector consumption will remain the main engines of economic expansion. Investment activity is also expected to hold up, supported by remaining EU-funded projects and stronger investor confidence linked to Bulgaria’s adoption of the euro in 2026. Exports should evolve in line with demand trends in major European markets.
At the same time, the OECD notes that headline inflation has edged higher due to wage increases, the return of standard VAT rates and rising utility costs. The expectation is that price pressures will gradually ease as income growth cools. Even so, the organisation warns that if wages continue to rise rapidly, the disinflation process could be prolonged.
The report stresses that the sharp increases in pensions, public-sector pay, social transfers and capital expenditure, coupled with lower-than-anticipated budget revenues, may force adjustments to ensure that the deficit stays within the EU’s 3% ceiling. According to the OECD, a moderate consolidation path combined with directing more public resources toward activities that boost long-term growth would both help rein in inflation and support the broader economy.
The organisation again underlines the importance of structural reforms, particularly in areas that would ease the green transition and improve the business climate. Simplifying procedures for renewable energy development, shortening the process for grid access, and reducing administrative burdens related to business registration, licensing and utility connections would, in the OECD’s view, have a positive impact on investment.
According to the flash estimate cited in the report, Bulgaria’s economic performance strengthened in the third quarter, with GDP expanding by 3.2% YoY. Household and government consumption remained the primary contributors to this growth, supported by rising real incomes, including increases in public-sector wages – especially in the security and defence sectors – credit expansion and social payments. Retail sales continue to rise, although at a slower pace, and investment activity has improved as EU-funded projects advance following the formation of a new government. Unemployment dropped to 3.4%, and the OECD expects joblessness to remain around 3% this year and over the next two years.
Annual inflation reached 5.3% in October, reflecting strong wage-driven cost pressures and solid domestic demand. A tight labour market, the indexation of minimum wages and pensions, the reinstatement of full VAT rates and higher utility prices have all contributed. With labour costs rising faster than productivity, the impact of pay increases on prices has become more pronounced.
The OECD forecasts inflation in Bulgaria at 3.8% for 2025 (compared with 2.4% in 2024). It predicts a slowdown to around 2.7% in 2026 and then to 2.4% in 2027.
Industrial production continued to contract over the past year, though the decline eased somewhat in September. Business sentiment remains subdued, and more companies report insufficient external demand. Export performance has been hurt by weak economic activity in key destinations, especially Germany. Imports have also fallen, despite robust domestic consumption and investment, due to sizeable inventory accumulation since mid-2024. The OECD adds that changes in global trade policy – such as the higher US tariffs on EU goods – will have only a modest indirect effect, mainly through the slowdown in EU demand, given Bulgaria’s limited direct exports to the US.
Fiscal consolidation has already begun, the report notes. Lower VAT revenues may restrict the government’s ability to fully execute planned expenditures. Because of commitments on pensions, social payments and salaries for civil servants, the state may need to scale back capital spending to stay within the EU’s deficit rules. Consolidation is projected to continue through 2026 and 2027, with limits on the growth of current public-sector wages and benefits and further reductions in capital outlays. Defence expenditure is expected to rise steadily to 5% of GDP by 2035 under NATO requirements. The European Commission has granted Bulgaria permission to temporarily exceed the 3% deficit threshold until 2028, under the exceptional circumstances clause, which the country is expected to use from 2026 onward. The planned withdrawal of energy subsidies for certain service-sector businesses from mid-2025 could create some short-term upward pressure on prices.
Financial conditions in the euro area remain generally supportive, and intense competition among banks, together with high liquidity, keeps consumer credit rates in Bulgaria below the euro area average. This continues to stimulate lending. Once Bulgaria joins the eurozone in 2026, liquidity in the banking system could increase further as minimum reserve requirements drop from 12% to 1%, potentially prompting the need for tighter macroprudential measures. Stronger liquidity, paired with improved investor sentiment, may also encourage more corporate lending.
The OECD concludes that Bulgaria will benefit from prudent fiscal management and targeted reforms. A balanced consolidation strategy, combined with investment in areas such as education and infrastructure, programmes encouraging Bulgarian workers abroad to return and measures that expand labour force participation, would help contain inflation, address demographic challenges, support climate and defence commitments and enhance overall economic growth.
The report also notes that streamlining the complex permitting framework for renewable energy and introducing a digital one-stop shop for grid access applications would accelerate the country’s green transition. Likewise, simplifying and digitising administrative procedures for starting a business, obtaining licences and securing utility connections would reduce costs and attract more domestic and foreign investment. (Novinite)