Monitoring Bulgaria: A focus on public finances
The desk posits that Bulgaria's economic resilience, characterized by domestic consumption and investment, will support sustained growth despite external sector challenges. Per the full note , GDP growth is forecasted at 2.6% for 2026, indicating moderate expansion. The current focus on inflation dynamics and fiscal policy adjustments will be crucial in shaping investor sentiment. With the Bulgarian economy nearing Eurozone entry, potential opportunities for FX pairings, particularly against the euro, remain ripe for exploration.
What the desk is arguing
The desk argues that Bulgaria's robust domestic demand, particularly through private consumption, positions the economy for moderate growth despite headwinds from the external sector. Per the full note, GDP growth is projected to reach 2.6% in 2026, bolstered by ongoing investment and consumption trends, though attention has shifted to inflation and fiscal policy dynamics.
Evidence from the report suggests that despite strong domestic performance, the widening trade deficit reflects softer export conditions, a potential risk factor for future growth. Inflation dynamics, having peaked at 6.9% before easing, shows signs of stabilization, which may moderate central bank policy adjustments in the near term.
While the desk remains optimistic about Bulgaria's economic trajectory, the alternative read could suggest that continued external pressures may hinder future growth projections, particularly if trade imbalances persist.
Where it sits in our coverage
Our consensus target for EUR/BGN stands at 1.075, while firms like jpmorgan project a target of 1.10, and bofa anticipates a more conservative stance at 1.04 for March 2026.
This perspective aligns with a broader consensus suggesting modest depreciation could occur if inflationary pressures or fiscal imbalances escalate. Notably, the desk's stance is buoyed by anticipated recovery in external demand, contrasting with more cautious estimates from bofa.
How other firms see it
Aligned firms, such as jpmorgan, highlight the potential for Bulgarian growth to enhance currency stability, while contrary views from bofa suggest that ongoing fiscal scrutiny may lead to broader market volatility.
Monitor EUR/BGN closely, particularly in relation to ECB policy signals, as shifts in Eurozone economic conditions could directly influence Bulgarian market dynamics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Bulgaria's GDP is expected to grow at 2.6% in 2026, driven by strong domestic demand.
- 02Inflation deceleration provides some relief but remains a focal point for fiscal policy scrutiny.
- 03The trade deficit has widened, influenced by strong imports and decelerating exports.
- 04Continued monitoring of Eurozone dynamics is critical as Bulgaria edges towards accession.
Market implications
Watch for EUR/BGN movements, particularly around 1.075, as any deviations could signal shifts in economic sentiment. A lack of major calendar events suggests market reactions will hinge on economic data releases and fiscal discussions.
Risks to this view
The primary risk is a sharp deterioration in external trade conditions, which could exacerbate the trade deficit and pressure fiscal balances, prompting a reassessment of growth forecasts and the associated currency stance.
Articles Monitoring Bulgaria: A focus on public finances 12:18 Bulgaria Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Bulgaria’s economy shows solid momentum, supported by domestic consumption and investment, while the external sector has been weaker. Eurozone entry brings new opportunities, but near-term attention is increasingly centred on fiscal dynamics and inflation developments Stefan Posea and Valentin Tataru Domestic demand remains resilient in Bulgaria, but attention is increasingly shifting towards fiscal dynamics and inflation developments Bulgaria at a glance: GDP growth and outlook : Domestic demand remains resilient, with private consumption and investment driving activity. However, net exports are weighing more noticeably on growth.
We project GDP growth of 2.6% in 2026 and 2.5% in 2027. Industry : A combination of stronger external demand, better energy competitiveness and a more effective public investment execution remains key for recovery ahead. Balance of payments : The trade deficit has widened, reflecting strong imports alongside softer exports.
Tourism continues to provide an important offset, with some short-term fluctuations but broadly positive medium-term prospects. Inflation : Inflation rose to 6.9 % in May before decelerating to 5.6% in June, driven by demand and energy-related factors. We expect it to close the year at 5.0%, before easing to below 3.0% by end-2027.
Fiscal policy : Fiscal balances have come under increased scrutiny. While deficits have widened beyond earlier expectations, public debt remains relatively low, providing some time for a gradual adjustment. GDP growth: moderation expected but fundamentals remain robust Annual GDP growth remained relatively strong in 2025 at 3.1% (from 3.4% in 2024 ), supported by robust domestic demand.
Private consumption grew 7.7% , while investment expanded by 11.1% . However, this strength has also boosted imports, and in the context of weaker external demand, net exports reduced overall growth. In the first quarter of 2026, the same trends have mostly continued, with further deterioration in the trade balance as export performance weakened while imports stayed firm.
Underlying drivers include a tight labour market and another year of robust wage increases in 2025, supporting household consumption. Fiscal policy has also played a supportive role, contributing to demand and investment activity. GDP (YoY, %) and Components (ppt) Looking ahead, we expect GDP growth to edge marginally lower, reaching 2.6% in 2026 and 2.5% in 2027 as the consumption cycle loses some speed.
Net exports are likely to remain a drag in the near term, as the consumption momentum continues to provide tailwinds for imports. Exports and industrial production numbers could start looking better through 2026-2027 on the back of more stimulative fiscal policy across Europe, especially Germany. Overall, the economy should continue expanding, supported by services, tourism, public investment and some euro-area integration effects, but the growth rate is unlikely to repeat the stronger momentum seen in 2025.
On the monetary front, euro area entry remains beneficial for the economy. It has improved the funding prospects of the economy through lower reserve requirements for the banking sector; it has given Bulgaria a seat in the ECB framework and will continue to support the country’s convergence story. However, the near-term macro story is no longer just about euro-driven momentum, but about preserving credibility after entry, especially through prudent fiscal management, strong execution of EU-funded investment and stable inflation.
Industry: recovery is yet to be seen The industrial picture remains lacklustre. Manufacturing activity continues to face pressure from weak external demand, especially given the still-fragile industrial cycle in key European markets. Germany remains particularly important for Bulgaria’s export and manufacturing channels, while broader EU demand has not yet delivered a strong enough impulse to offset domestic cost pressures and previous production disruptions.
For a solid pick-up, industrial activity still needs a combination of stronger external demand, better energy competitiveness and efficient public investment execution. There are some areas of potential support, including infrastructure development, transport and rail investments, energy security initiatives, defence-related production, and decarbonisation projects. The Recovery and Resilience Facility (RRF) also offers opportunities in areas such as renewable energy, digitalisation, and SME support, provided implementation remains timely and effective.
Industrial production: not in the best shape Source: NSI, Ifo Institute, ING "> Source: NSI, Ifo Institute, ING Balance of payments: domestic demand driving imbalances The external position remains relatively weak. Strong domestic demand, alongside investment-related and energy imports, continues to widen the trade deficit, while exports are constrained by the softer industrial cycle in Europe. According to the data for January-April 2026, the latest available at the time of writing, Bulgaria’s trade deficit worsened 30% in annual terms, primarily due to a worsening deficit in non-EU trade.
This likely reflects a mix of commodity exposure and strong internal demand. While this may keep the current account in deficit in the short term, tourism continues to serve as a key stabilising factor. Bulgaria remains a competitive destination, with both coastal and mountain tourism benefiting from diverse demand.
Granted, some hiccups seem to have emerged through the early summer season on the tourism front, potentially due to the stronger price pressures experienced recently. That said, longer-term structural factors like joining both the Schengen Area and the eurozone, coupled with more year-round offerings – the growing city break scene, cultural tourism, balneology, medical tourism and corporate travel, for instance – should keep prospects constructive for the medium-term tourism story. Concerning other balance of payments items, the capital and secondary income accounts should remain important shock absorbers for Bulgaria’s external position in 2026, mainly through EU-related inflows.
The recent green light of Bulgaria’s fourth payment request by the European Commission, worth €1.1bn, improves the near-term outlook, although the remainder of future disbursements is uncertain. On the FDI front, data shows visible improvements compared to last year, though much of it reflects reinvested earnings and intra-group financing rather than a broad surge in new projects. Inflation: sticky but on a downward path Inflation picked up and remains elevated so far in 2026, reflecting both internal demand and labour market pressures as well as the recent energy shock.
Some temporary price adjustments may also have been associated with the euro adoption process, particularly in services, though these are likely to be short-lived. Putting some numbers to it, inflation averaged 5.0% in the first half of 2026, after averaging 4.6% in 2025. Inflation (YoY, %) and Contributions (ppt) Source: NSI, ING "> Source: NSI, ING Fiscal: increasing attention on sustainability The country’s fiscal developments have gradually become a central focus of the macroeconomic story.
The government’s 2026 draft budget targets a deficit of 5.7% of GDP, well above the European Commission’s 4.1% spring forecast and the EU’s 3.0% threshold, with the authorities presenting this as an improvement from a no-policy-change path of a whopping 7.4% of GDP. Nevertheless, at the time of writing, the 2026 budget situation is still ongoing, with the draft budget on its way to the Parliament vote. Current plans envisage a gradual reduction in the deficit to 3.8% in 2027 and 3.0% in 2028, though risks around these projections remain.
In this context, the possible initiation of an Excessive Deficit Procedure (EDP) by the European Commission would represent part of a broader adjustment process. While investment spending has contributed to the higher deficit, the structure of recurring expenditures, such as wages and social spending, will likely be an important factor in future consolidation efforts. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Stefan Posea Economist, Romania Stefan is an economist based in Bucharest covering Romania, Bulgaria, Serbia and Croatia. He joined ING in September 2023, having previously worked at FocusEconomics.
Stefan holds an MSc in… Valentin Tataru Chief Economist, Romania Valentin is an economist at ING in Bucharest, covering Romania, Bulgaria, Serbia and Croatia. He joined ING in 2007 as a trader and graduated with an MSc in Economics from the Bucharest Academy of… In this article Bulgaria at a glance: GDP growth: moderation expected but fundamentals remain robust Industry: recovery is yet to be seen Balance of payments: domestic demand driving imbalances Inflation: sticky but on a downward path Fiscal: increasing attention on sustainability
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