Analyzing the dynamics of the macroeconomic indicators for the first quarter of the year, UBB commented on the key trends based on the currently available data.

The bank's analysts report that according to the adjusted preliminary data of the NSI, the country's gross domestic product (GDP) reported very good real growth of 2.3%, against the backdrop of a technical recession in Germany and low growth in other EU countries. On the demand side, growth was driven by consumption (+2.1%) and investment (+1.8%), against a background of symmetric growth and a decline of 2.3%, respectively, in exports and imports.

"The double-digit average annual inflation during the quarter (14.1% harmonised), including the accumulated so far, suppressed consumption, which, despite solid (nominal) wage increases (+16.2%) and consumer lending (+13.0%) increased moderately compared to previous quarters," commented UBB Chief Economist Dr. Emil Kalchev.

"The fact that investment is also growing, albeit relatively slowly, for the second consecutive quarter after seven quarters of decline, suggests that the economy is still adjusting to the volatile (internal and external) political situation," Kalchev added.

On the production side, real annual GDP growth during the quarter was driven by intense construction dynamics (+7.0%) and steady growth in services (+3.2%). Agriculture increased its output moderately by 1.1%, while the industry recorded a result comparable to that of the first quarter of last year (+0.1%).

"Double-digit real industry growth, which began in the fourth quarter of 2021 and continued in the first three quarters of 2022, driven by electricity generation and the military industry, is a thing of the past. Electricity prices normalized, which slowed down the growth in its production. On the other hand, the slowdown in the economies of key European partners (including Germany) has also begun to affect the sector," Kalchev explained.

For its part, inflation decreased again in May – from 10.3% as of April (harmonized) to 8.6% (compared to May 2022), entering single-digit territory. Core inflation (excluding food and fuel) also continued to fall from 12.1% to 10.7% in May, but slower than headline inflation. The so-called consumer inflation (according to the national methodology) slowed down accordingly, registering slightly higher values than the harmonized one, but it was also lower than the basic one.

"The reason for this situation is the faster decline in energy and food prices compared to those of other consumer goods and services. In the upward phase, it was energy and food that drove inflation, the prices of which were rising much faster and significantly. Subsequently, inflation spread to other goods and services, with inflation expectations emerging. They are now slowing the decline in underlying inflation, which is further fueled by growth in consumer and mortgage lending and a pro-cyclical government budget in which deficits of 3.0% of GDP are largely contained. In addition, unemployment decreased to 3.9%, which is why the average wage is growing (by over 16%), which also affects the slowdown in inflation, "said Dr. Kalchev.

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UBB Bank