Q2 2024 Bulgaria Economic Overview

MACRO OVERVIEW

A slow but steady recovery

After rising with 1.9% in 2023, GDP rose with 2.3% in 2024 Q2 as the effects of the war in Ukraine began to lessen their influence on the economy. GDP has still not reached its pre-war level, but the start of the recovery is noticeable. As the economy continued its stabilization, a larger increase in GDP may be expected for the rest of 2024.

The change in the CPI till Q1 2024 and Q2 2024 was only 0.7% and 0.2% respectively. This was a positive change from 2022 when the CPI rose with 14.3%. This steep rise came from the problems with the deliveries of energy sources, such as oil and natural gas, which occurred after the beginning of the war. As prices began to stabilize, a renewed strength in household demand and business investment may be expected.

Currently the unemployment rate for 2024 is forecasted to fall to 4.3% – a clear improvement compared to 2023 when it was 5.6%. This will most likely have a positive effect on household demand and business productivity.

The average monthly salary has shown a steady rise in 2024 compared to previous years, reaching EUR 1,148 in Q2 2024. This, combined with the above-mentioned stabilization of prices, painted a positive outlook for the earnings of the business sector. A further rise in average monthly salary may also be expected for the rest of 2024, as in October a rise of the minimum wage by 15.4% to EUR 550 was announced by the interim government.

In Q2 2024 exports reached EUR 13,150 mln – an increase of 14.34% compared to 2023. This is a sign that international trade is starting to normalize after the problems caused by the war in Ukraine. The same situation can be observed for imports, which reached EUR 13,536 mln in Q2 2024 – an increase of 12.66% compared to 2023.

Foreign direct investments fell sharply in 2024, declining to EUR 216 mln in Q2 2024. This is a strong contrast compared to 2023 when FDI was EUR 1,499 mln. The reason for this decline was the on-going failure of the Bulgarian political parties to produce a stable government, which heightened investors’ skepticism, slowed payments to all industries working with state counterparts and increased likelihood of company defaults.

INFLATION

The stabilization of prices continues

The total change of the inflation in 2024 has been 3.4%, which is a modest change compared to 2023 when it rose with 13.4%. The stabilization of prices meant better purchasing power of households, which in turn led to an increase in real GDP. The biggest increase was in the sector Restaurants and hotels which marked an 8.5% increase. This likely had a negative impact on the attractiveness of Bulgaria as a tourist destination compared to other destinations and put pressure on the restaurants and hotels industry. The next two sectors with high increases were Education – with 7.1% increase, and Alcoholic beverages and tobacco – with 5.9% increase. The sectors with the smallest increases were Communication – which fell with 0.4%, and Clothing and shoes, which rose 0.3%.

POLITICS

Continuous instability and rising discontent

2024 continued to be a volatile year because of the inability of the parties to form a government. There were several surprising developments in the June elections, including the DPS party’s second-place and the entry into parliament of the newly formed nationalist party Velichie. Meanwhile, another nationalist party, namely the Revival party, once again recorded an increase in the votes received. This development indicated the changes in voters’ priorities, with right-wing nationalist parties gaining increasing public support. On the other hand, growing criticism and doubt has been rising towards the once widely supported pro-European parties such as PP-DB and GERB-SDS.

The October elections clearly showed changes in the political environment. Firstly, the Turkish minority party DPS split into 2 parties – DPS: New Beginning and Alliance for Rights and Freedoms. Secondly, a relatively new nationalist party –the Morality, Unity, Honor party – surprisingly entered the parliament. Meanwhile, the Revival party continued to climb in the rankings by number of votes, this time reaching 3rd place. These dynamic developments clearly showed the impatience and frustration of the Bulgarian society with the lack of a stable government. Similarly to other European countries, nationalist parties are beginning to gain more popularity in Bulgaria, while Euroscepticism in society is growing. At this stage, it is still unclear whether the October elections will lead to the formation of a government, but if this once again does not happen, increased public discontent, ineffectiveness of state policy and foreign skepticism towards the development of the Bulgarian economy are to be expected.

DEBT AND CREDIT RATINGS

A secure and conservative approach

       It is noted that a large part of the total debt is in EUR, namely 71.72%, while 28.13% are in BGN, and the rest are in other currencies. Volatility and FX risk remain low as 98.36% of the debt is EUR denominated and at a fixed interest rate.

Due to strong fundamentals, the rating agencies’ outlook remains positive. S&P, Moody’s and Fitchs Ratings remain the same in 2024.

BULGARIAN STOCK MARKET

 A strong development

        Throughout the indexes the largest gainers are some of the most traded companies, most of which recorded very positive results for Q2 2024 and Q3 2024, this will most likely affect future demand for them as well. Some particularly good performances in Q2 are CB First Investment Bank AD with 80.33% gain, Speedy AD with 68.02% gain and Trace Group Hold AD with 53.17%.

At the time of writing, Q3 results were published, so the best performers for Q3 were Holding Nov Vek AD with 64.63% gain, Trace Group Hold AD with 48.31% gain and BREF with 43.65% gain.

The full report can be found here. 

Elitsa Chavdarova – Analyst

Ivaylo Valchev – Equity Analyst

Svetozar Abrashev – Managing Partner