Bulgaria's Fiscal Council has said economic growth could stall and inflation hit 5% in 2026 under a worst-case scenario driven by prolonged geopolitical tensions and energy supply shocks, Dnevnik reported on April 23.

The council outlined three scenarios for Bulgaria's economic development in 2026, reflecting heightened uncertainty over global conflict, domestic political instability and energy markets. It assigns a 60% probability to the baseline scenario and 20% each to the pessimistic and highly pessimistic outcomes.

In the baseline scenario, the Bulgarian economy would face a sharp rise in energy prices triggered by the war in the Persian Gulf, leading to weaker external conditions and slower growth. The council described this as a classic supply-side shock similar to the 1970s, combining rising prices with reduced output and a stagflation-like environment.

The baseline scenario assumes the conflict will remain limited in duration, lasting until mid-2026, with gradual recovery thereafter alongside normalisation of oil and gas prices. Under this projection, GDP is projected at €127bn ($136.6bn) with 2.5% real growth and average inflation of 4.2%. Consumption is forecast to slow, investments to stagnate in real terms and the trade balance to remain negative given higher import costs.

The pessimistic scenario assumes prolonged disruptions in global trade and commodity flows extending into the third quarter of 2026, slowing growth to 1.9% and lifting inflation to 4.6%.

In the highly pessimistic case, which includes prolonged disruption to flows through the Strait of Hormuz, real growth could fall to 0.5% while inflation reaches 5%. Recovery would be delayed until early 2027, with sustained instability in global financial markets and significantly weakened investment activity.

The council also flagged risks of weaker external demand, lower investment and reduced EU fund inflows.

The warnings reinforce projections from other Bulgarian institutions. Bulgarian National Bank Governor Dimitar Radev has said economic growth could slow to around 3% in 2026 with inflation at approximately 3.7% under the central bank's own baseline, with Bulgaria moving closer to the unfavourable scenario amid reduced fiscal space.

The finance ministry's spring macroeconomic forecast projected average annual inflation of 4.3% this year with a year-end rate of 5.2% in 2026, alongside GDP growth slowing to 2.6%. The ministry has warned that continued instability could further increase inflation and reduce growth.

Bulgaria's headline inflation rose to 4.1% year-on-year in March from 3.3% in February, according to national statistics, driven by rebounding transport costs amid the Middle East conflict. Allianz Trade raised its 2026 inflation forecast for Bulgaria from 2.8% to 3.7% earlier in April.

Bulgaria joined the euro area in January 2026, placing additional pressure on fiscal policy as the main tool for managing inflation, the OECD has said.