Bulgaria's economy will be fuelled by an upturn in domestic demand in the next two years, the Agency for Economic Analyses and Forecasts (AEAF) association said as quoted by news agency BTA.

According to AEAF member Valentin Chavdarov, the country's gross domestic product (GDP) will see a 3.8% annual increase in 2011 and accelerate further to 4.7% next year, mainly on the back of a rebound in domestic consumption.

For about two years, shrinking consumption has been blamed by economists as the main factor curbing the recovery in Bulgaria's economy. Local export-oriented companies enjoy an improvement in their performance, which is however not sufficient to push the economy strongly forward. Furthermore, inflation, coupled with the wage freeze, also hinders demand for products and services on the domestic market.

AEAF projects that inflation will reach 3.8% this year due to the higher food and petrol prices, which will continue to increase considerably by mid-2011. The analysts expect that consumer prices growth will ease down to 3% in 2012.

The country's budget deficit is expected to be less than three per cent of GDP in 2011, while investments are seen rising 5.8% to EUR 1.5 billion.

The analysts also predict that consumption will go up by 1.9% in 2011, in line with the projected improvement on the labour market.