Abstract

This article examines the key macroeconomic trends and early warning signals for the Bulgarian economy in 2023– 2024, in the context of an unstable external environment. The study aims to identify the main drivers of growth, assess inflationary dynamics, and evaluate the applicability of an early warning indicator. The analysis is quantitative and empirical, combining descriptive and comparative examination of official data with econometric modeling using a Markov-switching dynamic factor model. The findings show that GDP growth slowed from 4.0% in 2022 to 1.9% in 2023, before rebounding to 2.8% in 2024, driven primarily by domestic demand, while external demand weakened. Inflation declined from 13.0% in 2022 to 3.1% by the end of 2024; however, price pressures in the services sector remained elevated due to rising wages and labor costs. The proposed early warning indicator, constructed from five high-frequency variables, successfully signaled a 70% probability of low growth in mid-2023, which decreased to 55% by the end of 2024. These results highlight the value of high-frequency data and advanced modeling techniques for timely forecasting of cyclical fluctuations.