Continued convergence, but with some caveats
After a lost decade of transition in the 1990s, Bulgaria only made progress towards economic gains and shared prosperity in the 2000s based on growth rates of 4 to 6% per year. The Covid-19 pandemic pushed the Bulgarian economy into a recession in 2020 with a decline of GDP of 4.4% (EU27: 5.9%). While the economy rebounded in 2021 (GDP growth of 3.8 %), it nevertheless performed below expectations, mainly due to new infection waves that were not aided by a vaccination rate less than half the EU-average. Growth is expected to further strengthen to above 4% but may be hampered by stronger inflation and continued vaccine hesitancy.
While Bulgaria has been lagging behind the rest of the EU in terms of economic development, the gap continues to narrow, also during the pandemic. Income per capita (at PPP) reached 55 % of the EU average, which remains the lowest in the EU, while income inequality was the highest among all EU countries as of 2020. The percentage of Bulgarians at risk of poverty increased by more than a percentage point in 2020, which has also increased the gap to the rest of the EU (23.8% in Bulgaria versus 17.1% in the EU27).
The high growth of the pre-Covid-19 years translated into improved labour market performance and rapid wage growth. Unemployment fell from its peaks in 2001 (20%) and 2013 (13%) to 4.3% before the pandemic. It reached its pandemic peak in early 2021 at 5.7% and has since subsided to 5.2%. However, the aggregate figures mask important inequalities in labour market outcomes. For example, youth unemployment grew much more during the pandemic, by 4.9% in 2020. Moreover, the impact of the pandemic on working hours lost was also far bigger. ILO calculations show that 4.9% of all working hours were lost in 2020 due to lockdowns as compared to the last quarter of 2019 (EU27: 7.4% of working hours lost). However, unlike the EU27, working hours nearly recovered to pre-crisis levels in 2021 and are expected to increase by 1.2% in 2022 (the EU27 is still expected to underperform the fourth quarter of 2019 by 0.2%). The amount of working hours lost in 2020 corresponds to an equivalent of 155,700 full-time jobs, a figure that quickly declined to an estimated equivalent of 7,800 full-time jobs in 2021. While this is not a reflection of the true number of jobs lost, it nevertheless implies that working hour losses largely did not result in employment losses, but rather stemmed from shorter hours and being employed but not working. Government measures such as wage subsidies and temporary tax exemptions helped to mitigate the labour market impact and explain the relatively low reduction of employment (-2.7%). Yet, the employment recovery in 2021 was slower than in other parts of the EU and has not yet reached pre-pandemic levels. A worrying detail is that the number of NEET (youth neither in employment, education or training) is increasing faster than unemployment and stands currently at 22% (EU27: 18%).
With these caveats in mind, it should also not be overlooked that the demographic development of Bulgaria had a significant impact on the relatively good labour market performance of the country. The population fell from 9 million to 7 million in only 30 years (1990 to 2019). Emigration alone has contributed to a decline of the economically active population of 10% and continued low fertility will further drive population aging.
Key future challenges of labour market and social policies are the insufficient coverage of the social protection system, labour shortages in certain sectors, skills mismatches, as well as high rates of inactivity among Roma, low skilled workers, and rural population. While Covid-19 did not have very negative employment effects, it put greater pressures on young people and selected sectors like the tourism industry.