Bulgarian Economy on the Verge of Euro Area – Current Challenges and Medium-Term Projections

The paper examines the current state and development of the Bulgarian economy in 2022 and the first quarter of 2023 considering domestically determined and regional factors and processes. We analyse the real sector of the Bulgarian economy by tracing the dynamics of economic activity (GDP, inflation, and unemployment) considering internal and external factors affecting inflation dynamics and labour market processes. The sustainability of the fiscal sector is viewed through the possibilities of financing the green and digital transition using EU funds and programmes, and the policies needed to preserve the fiscal stability. Prospects for foreign trade are discussed in terms of the economic situation and expectations of Bulgaria's main trading partners, considering the high connectivity with the euro area and the structural specificities of foreign trade relations. The analysis of the financial sector (banking sector and capital market) focuses on the implications of the monetary policy pursued by the European Central Bank and the regulatory actions of the Bulgarian National Bank, as well as on the risks for the stable functioning of the sector in a dynamic macroeconomic environment. Expectations and forecasts for the Bulgarian economy to 2025 are based on key assumptions about the global economic processes and locally determined challenges. Recommendations are made to the national economic policy aimed at preserving the purchasing power of the population's income and the need to restructure certain fiscal measures.