Sofia, April 23 (BTA/GNA) – Bulgaria’s Fiscal Council on Thursday presented multiple scenarios for Bulgaria’s economic development in 2026, taking account of the uncertainties in the global, regional and domestic political situation. The Council said in a report that significant risks have arisen this year.
The organization has developed a realistic scenario, a pessimistic scenario and a highly pessimistic scenario for Bulgaria’s economic development in 2026. The baseline scenario is the realistic one, with a probability of 60%, while the pessimistic and highly pessimistic scenarios are each assessed at 20%.
Realistic scenario
The realistic (baseline) scenario for the economic development of Bulgaria in 2026 is based on a sharp rise in energy prices as a result of the war in the Persian Gulf. This scenario is characterized by a deterioration in the external economic environment, reflecting a slowdown in growth due to a classic supply shock similar to that of the 1970s.
A supply shock is an event that suddenly increases or decreases the supply of a good or service. This abrupt change affects the equilibrium price of the good or service and the overall price level in the economy. A supply shock can lead to stagflation due to a combination of rising prices and falling output, the report says.
The realistic forecast is based on the key assumption that the military conflict in the Middle East will be relatively short-lived, lasting at most until mid-2026, after which a gradual recovery of economic activity and a normalization of oil and natural gas prices are expected.
Pessimistic scenario
This scenario assumes that disruptions in international trade caused by the military conflict in the Middle East will continue beyond the second quarter of the year. Disruptions in the supply of raw materials will persist until the third quarter of 2026, after which a relatively rapid recovery of trade flows is observed.
Highly pessimistic scenario
This scenario is based on the assumption of a more severe and prolonged supply shock in energy resources, including a disruption of most flows through the Strait of Hormuz.
In addition to logistical difficulties, direct damage to the energy infrastructure of energy-exporting countries in the Middle East is also expected as a result of military operations, which significantly extends the period for restoring supplies of these goods.
Volumes begin to normalize only at the beginning of 2027. As a result, uncertainty in international financial markets is more pronounced and prolonged, further amplifying negative economic effects.
The assumptions underlying this scenario are that Bulgaria’s main trading partners will experience a prolonged and deepening stagnation, accompanied by fiscal crises, downward revisions of private investment plans and the disbursement of minimal payments to Bulgaria under the Recovery and Resilience Plan.