Bulgarian Council for Economic Analyses

The Council for Economic Analyses submitted its Annual Report for 2023 to the Council of Ministers of the Republic of Bulgaria. The report covers the Council's work in 2023. It includes an analysis of the current state of the Bulgarian economy and papers prepared by members of the Council on specialised topics that identify medium and long-term risks and opportunities for the Bulgarian economy. The full report is available on the Council's website here: https://cea.egov.bg/wps/portal/cea-web-en/annual-reports-en

The analysis of the current situation provides a synthesis of developments in several key macroeconomic indicators. It sets the overall context concerning both the medium- and long-term potential of the Bulgarian economy and the risks it faces. Among the indicators analysed are real gross domestic product, labour productivity and gross fixed capital formation, which are a good reflection of the state of the real sector. Together with indicators describing the labour market, such as the labour force, employment and unemployment, their values also outline the medium-term potential for economic development. The current account balance, in turn, provides an indication of the sustainability of the country's external position. In addition, the examined dynamics of the inflation rate shows the degree of achievement of nominal convergence as an element of Bulgaria's catching-up with the EU average of economic indicators.

The 2023 report pays special attention to investment activity in Bulgaria. After years of booming investment in the period immediately preceding the 2008-2009 financial crisis, the Bulgarian economy is in a multi-year period of investment stagnation in terms of gross capital formation as a share of GDP. By 2023, this ratio has stabilised at approximately 17%. This level is comparable to investment levels in Bulgaria in 2000 and is 9 percentage points lower than the level of investment activity in neighbouring Romania in 2023. A review of capital formation by asset type shows that the main risks to investment activity in Bulgaria relate to the extremely low share of investment in non-residential buildings and infrastructure. As this group of assets includes key public infrastructure such as roads, water and sewerage facilities, railways, bridges, etc., the unfavourable dynamics in this type of fixed assets calls for a more serious commitment to capital investment by the government, as well as more active steps towards engaging and stimulating the private sector in the construction and operation of infrastructure. Intangible assets (i.e. intellectual property) and investment in machinery and equipment do not show negative trends compared to other comparable EU countries such as Croatia and Romania. Nonetheless, investment in intangible assets should accelerate significantly to catch up with the much higher rates for more developed EU economies (around 4% of GDP vs. around 2% in Bulgaria). Also, investment in machinery and equipment can be stabilised at relatively higher levels, which will contribute to a faster technological modernisation of the economy. Well-structured and financed policies aimed at stimulating investment in these types of fixed assets in the form of subsidies and grants for innovation and technological modernisation would contribute to accelerating productivity growth. In addition to these policies, there is a need for continued efforts to pursue structural reforms in the justice sector to increase the certainty and predictability of the investment environment.

The Annual Report for 2023 will be presented during the Annual Conference of the BCEA, which will be held on 24 and 25 June at Sofia University “St. Kliment Ohridski”.