The EU economy is rebounding from the pandemic recession faster than expected. As vaccination campaigns progressed and restrictions started to be lifted, growth resumed in spring and continued unabated through summer, underpinned by the re-opening of the economy. Despite mounting headwinds, the EU economy is projected to keep expanding over the forecast horizon, achieving a growth rate of 5%, 4.3% and 2.5% in 2021, 2022 and 2023 respectively. Growth rates for the euro area are projected to be identical to those for the EU in 2021 and 2022, and 2.4% in 2023. This outlook depends heavily on two factors: the evolution of the COVID-19 pandemic and the pace at which supply adjusts to the rapid turnaround in demand following the re-opening of the economy. Regarding Bulgaria, the forecast is for an increase in real GDP by 3.8% in 2021, by 4.1% in 2022 and 3.5% in 2023.
EU labor markets have improved significantly thanks to easing restrictions on consumer-oriented activities and reducing the unemployment rate. Unemployment in the EU is expected to fall from 7.1% this year to 6.7% and 6.5% in 2022 and 2023, respectively. In Bulgaria, it is expected to be 5.1%, 4.6% and 4.4% over the three years.
Better growth prospects point to lower deficits in 2021 than expected in the spring.
Temporary price pressures worldwide are leading to inflation, the highest level in ten years. This sharp rise in inflation is mainly due to the sharp rise in energy prices, but also appears to be linked to a wide range of economic adjustments since the pandemic, suggesting that the current high levels are largely temporary. In Bulgaria, inflation is expected to reach 2.4% in 2021, 2.9% in 2022, and then decrease to 1.8% in 2023.
Although the impact of the pandemic on economic activity has diminished significantly, COVID-19 has not yet been defeated and recovery depends to a large extent on the development of the disease both inside and outside the EU. Uncertainty and risks around growth prospects remain very high.
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