After the economic expansion lost some traction in 2018, with annualized growth on track to reach 3.5%, we expect growth to accelerate to 3.9% in 2019, marking the fifth consecutive year of above-potential growth. The impact of temporary factors (including a hefty fall in export volumes to Turkey, higher energy prices and a weaker-than-expected harvest due to a summer draught), which were behind the growth deceleration in 2018, will likely ease in 2019.
In addition, growth in 2019 will be supported by a moderate fiscal stimulus and an acceleration of both private and public investment. Working in the opposite direction, the external environment is likely to become more challenging in 2H19, with both slower growth in advanced economies and anticipated EUR appreciation potentially weighing on exports. A further deceleration of growth to 3% is forecasted in 2020, due to a cyclical downturn expected in advanced economies and a slowly progressing deterioration in financing conditions. However, firm domestic demand will likely prevent growth from falling to below potential, making Bulgaria an outperformer in EU-CEE.