Sofia - faster economic development, but limited by the labor market conditions
Sofia continues to be Bulgaria's main economic driver, but the capital's labour market is already beginning to run out of energy and its expansion is becoming increasingly more difficult. This is clear from the Economic and Investment Profile of Sofia (link in Bulgarian), compiled by IME for the Sofia Municipal Agency for Privatization and Investments.
Sofia produced approximately 40% of the country's gross domestic product for 2018, a share that has gradually increased in recent years. However, the capital has a very different economic structure compared to Bulgaria as a whole, due to the significantly higher role of services, as opposed to a smaller share of agriculture and industry.
Due to the rapid expansion of outsourcing of services and information and communication technologies, the capital is among the districts in Bulgaria that are rapidly increasing their productivity. These subsectors combine a considerable part of the investments in the field and the commercial activity.
If the previous period of economic crisis is of any indication, even with the presence of a marked slowdown in Bulgaria's economic growth, Sofia is likely to remain less affected than other districts, especially compared to those with an industrial profile.
At the moment the biggest challenge for further development of the capital's economy is its labour market restrictions. In the last quarters with available data employment in Sofia exceeds ¾ of the working-age population, and at the same time, unemployment has almost reached its natural minimum (depending on the quarter, about 10 thousand people), and going below that minimum would severely restrict the labour market mobility.
There are several sources of additional labour resources in the capital - the main one is the positive migration, thanks to which Sofia attracts many of the talented and educated workers from other districts in the country. Over the last two years, there has also been a significant increase in employment among the elderly (over 55 years), which means that companies are increasingly turning to them. Thanks to the boom in construction, even people with lower education are already able to find a job. The least used source of additional labour force for the capital so far is employment of foreigners, mainly due to restrictions on hiring people from third countries, and difficult competition with living standards in other European countries (although in some industries, especially in ICT, this is already changing).
If Sofia manages to overcome the restrictions on the labour market, there are positive prospects of its economic development. Due to its significantly faster growth, the capital is likely to continue to concentrate an increasingly bigger part of the country's economy, especially services, and to attract the best-educated and talented workers and entrepreneurs.
