Bulgaria’s economy depends on general trends in the European Union
The challenges facing the world in 2022-2023 had a significant impact on Bulgaria’s economy. The main cause of the global crisis was the geopolitical conflict in Europe, which led to higher energy prices, a record inflation increase and other problems.
For Bulgaria, as for the global economy as a whole, the inflation rate was the highest in the last 40 years. This led to a decline in consumer solvency and a record rise in interest rates. As a result, business activity in the country has declined, and the technological lag in a number of advanced industries has become extremely acute.
Bulgaria’s economy is directly linked to the European economy, and any fluctuations have an immediate impact on the country’s market. For a long time, the EU had hoped that China would become a driving force for German industry. This would have given a boost to sectors across the EU.
However, as a result of the strict measures to prevent COVID-19, the Chinese economy has slowed down considerably. The lifting of the restrictions at the end of 2022 was an improvement, but in July 2023, exports were 14. 5% compared to the same month in 2022. The decline in the first half of 2023 was 5%.
Overview of GDP dynamics in European countries
The slowdown in the Chinese economy has also had a negative impact on the pace of development in the European Union. According to the data for the 2nd quarter of 2023, the situation in the EU is as follows:
– EU GDP grew by 0.2%, after 0.6% in the first quarter of 2023;
– German GDP fell by 0.3%;
– Italy’s GDP fell by 0.3%.
The index that reflects the situation in the manufacturing sector also fell. In Germany, the index fell by 1.5% in July, while in Italy, it rose by 0.7%.
The output price index for the EU is also in negative territory, falling by 0.4%, pointing to a general trend of economic slowdown in the region.
How the situation in the EU affects the Bulgarian economy
Reduced demand for manufactured goods and raw materials on the world market reduces Bulgaria’s exports and, consequently, the industry volume. The value of the country’s exports has declined for four months, and the first half of 2023 fell by 3.1%. The decline is mainly due to a drop in exports of sunflower oil, fuel and electricity. At the same time, analysts note that some of the slowdown in momentum is related to the process of market normalisation after the fluctuations of 2022 when exports reached record highs in a number of sectors. However, there are still segments where sales to foreign markets continue to grow. These include consumer goods and equipment.
Growth in domestic consumption should also come into play. Retail sales rose 2.4% in Q2, with food sales up 4.2%. According to analysts, the main reason for this is an increase in wages.