Bulgaria – Structural Developments and Challenges in the Context of the Euro Adoption

Authors:

Pages: 13-20

Abstract:

Bulgaria has been the country recording the most sustainable convergence towards the EU average in the past decades. This process was strongly determined by the currency board imple mented since the 1990s and by the forces of EU integration. The economic activity grew for the fifth year in a row in 2025, by an annual rate of 3.1%, according to the preliminary estimates of Eurostat. Noteworthy is the advance of gross fixed capital formation by 11.4%, as the companies accelerated the investments before the effective introduction of the EUR. In this paper, standard econometric tools are applied, while the Eurostat database is used to analyse the structural developments over the past decades and to identify the medium-term challenges for Bulgaria. According to the results of the econometric analysis, the annual potential growth pace in Bulgaria has been on an upward trend since 2014, to a level above 3.5% in 2025, the highest level since 2008 (the year of the outbreak of the Global Financial Crisis). The upward trend for the annual potential growth was mainly determined by the significant improvement of the multifactor productivity, to record high levels (above 2.5pps) in recent years. This evolution expresses positive prospects for the macroeconomic performance of Bulgaria in the medium run, and a strong resilience in the event of the outbreak of future global shocks. On the other hand, our analysis also identifies structural challenges for Bulgaria, including the downward trend for the labour force and the deteriorating public finance.

Keywords:

Bulgaria; potential output; multifactor productivity.

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