The Bulgarian Economy Prior To Euro Area Accession: Macroeconomic Convergence, Inflationary Dynamics, Fiscal Developments and Sectoral Adjustment

Economic activity in Bulgaria in 2025 continues to increase, but with stronger dependence on domestic sources of growth and a weakening external position. Growth is sustainable in pace but unbalanced in structure, with final consumption leading, net exports deteriorating and investment still insufficient for a productivity-led trajectory. Inflation is primarily internally generated, and its reduction requires higher productivity, competition and budget discipline, not only temporary price measures. Low unemployment conceals labour shortages, so activation of inactive persons and upgrading of skills are central to growth potential. Fiscal risks are increasing as the key problem is not the debt level, but recurrent expenditure financed by new debt amid weak public-investment efficiency. The external sector becomes a main macroeconomic risk, while banking stability is high, but rapid credit and housing-market dynamics require preventive supervision. Euro area accession marks a major institutional shift, ending Bulgaria’s currency board arrangements and integrating it into ECB monetary policy. Yet membership does not automatically boost growth, investment, or external sustainability, especially as domestic prices and costs are rising faster than in many trading partners. Therefore, policy should shift from stimulated demand to sustainable growth based on productivity, skills, investment and high-value exports.