Bulgaria needs wages and prices to fall further to increase competitiveness and help economic output return to pre-crisis levels, Capital Economics said.

"The Bulgarian economy is in the middle of a lost decade. A lack of competitiveness against the backdrop of a fixed exchange rate, coupled with the country's close proximity to the euro-zones weakest economies means that growth is set to remain extremely subdued for some time. In fact, we fear that GDP may not return to its 2008 levels until 2015. But while growth over the next 3-5 years is likely to disappoint, efforts to restart macro reforms could yet ensure that the economy performs well over a 5-10 year horizon," it said.

Source: bne