The Bulgarian economy has been gradually emerging from the crisis, but a broad-based recovery is not yet in sight. The necessary fiscal consolidation moderates domestic demand and still prevalent risks deter private investment despite healthy net export growth and positive labour market trends. Given the still weak potential growth, a decline in EU fund absorption temporarily lowers GDP growth to an estimated 1½ percent in 2016. Growth is expected to rebound to about 2% in 2017 as the implementation of EU projects gathers pace once more. The crisis has more than halved Bulgaria's rate of potential growth thus halting real income convergence with peer economies.
Bulgaria is experiencing excessive macroeconomic imbalances. The economy is characterised by remaining fragilities in the financial sector and high corporate indebtedness in a context of high unemployment. Although banking sector liquidity and profitability have improved, a more robust assessment of the sector can only be based on the upcoming asset quality review and stress tests. Long-term unemployment has further increased in a context of adjustment issues linked to labour market frictions, while skill mismatches hamper job creation. Looking forward, the plan to reform and develop banking supervision has yet to be fully implemented and improving the efficiency of the insolvency procedure remains a challenge, with legislative proposals in preparation. Furthermore, vulnerabilities in the non-banking sector remain to be addressed.
Read a complete analysis of Bulgaria's economy in the country report 2016 [2 MB]
2015 recommendations in brief
The Commission has made five country-specific recommendations to Bulgaria to help it improve its economic performance. These are in the areas of: fiscal consolidation, taxation and health; financial sector; labour market and wage-setting; education; insolvency.