After improving in 2023, the trade deficit is expected to reverse most of the gains in 2024. From January to September 2024, the deficit was 23% higher than the same period last year. Two notable factors stand out: the rather negative one is the visible worsening in the food and oils sector, which also poses an upside risk for inflation. On the positive side, there is a visibly stronger trade surplus in manufactured goods, which offsets some of the negative trade developments.
Looking at the breakdown of trade by countries, what stands out is the visible worsening of Bulgaria’s trade balance with Romania, which was partially compensated for by an improving trade balance with Germany. A likely explanation could be a rearrangement of value chains. Moreover, there were significantly smaller imports from Russia, also partially a result of the recent oil import ban starting from 1 March 2024. Likely as a result, imports from Kazakhstan picked up visibly. They were followed in size by stronger imports from Egypt, Turkey and Norway, most of which are also likely energy-related rearrangements.
In 2024, the current account should benefit from another likely increase in tourist levels. Strong real income gains in Romania will likely add a boost to the revenues of Bulgarian resorts while the quasi-stagnation of the European economy could, at the margin, lead more Western tourists towards cheaper holiday alternatives. As such, services export gains should continue to at least partly offset some of the deficit pressures still foreseen ahead.
Concerning other BoP categories, the capital account and secondary income are unlikely to benefit substantially from EU funding as long as the political turmoil carries on. Even after a new government takes power, it will take some time for political risk to rank lower on foreign investors’ heatmaps, keeping near-term risks for FDIs on the downside. Year-to-date, FDIs fell to EUR 1,241mn in January-September 2024, compared to EUR 3,381mn over the same period last year, mainly due to declines in reinvested earnings. At least part of this decline could be attributed to significant legislative changes brought by the recently adopted FDI screening regime in February this year. Overall, the regional context involving the Vertical Corridor, the Three Seas Initiative, and some NATO-led investments could provide small tailwinds for FDIs and partially offset the negative impact of delayed reforms.