Bulgaria's Ministry of Finance Forecasts Halved Inflation Rates for 2024

The Ministry of Finance in Bulgaria has revised its inflation predictions for the year 2024, slashing them by half compared to previous estimates. According to the department's spring macroeconomic forecast, the average annual inflation rate is anticipated to drop to 2.4%, with further deceleration to 2.3% by year-end.

This adjustment marks a significant departure from the autumn forecasts, where expectations were set at 4.8% for average annual inflation and 3.3% by the end of the year.

The Ministry attributes the expected slowdown in inflation to core components and particularly services, which are projected to experience the highest price increases and make the most significant contribution.

However, despite the optimistic outlook, Bulgaria faces challenges regarding Eurozone entry criteria, with inflation being the only criterion currently unmet. While the official plan aims for Eurozone accession by January 1, 2025, concerns arise that this deadline may be missed due to inflation issues. Alternative entry timelines, possibly mid-year, are under consideration, although such practices are unprecedented.

Geopolitical factors pose additional risks to Bulgaria's economic outlook, with ongoing conflicts potentially impacting the global economy, particularly in the EU region. Concerns persist regarding limited raw material supplies and deteriorating financing conditions, which could dampen investment and consumption.

To address these risks, the Ministry has developed alternative scenarios considering unfavorable external developments and higher international raw material prices. Simulation results indicate potential inflationary pressures and reduced GDP growth compared to baseline projections.

Despite these challenges,...