After two years of no or limited growth, GDP is projected to grow by 0.4% in 2025 and by around 2% in 2026 and 2027, supported by consumption and the recovery of investment and exports. Inflation is set to moderate from 4.5% in 2025 to below 4% in 2026 and 2027, but inflationary pressures remain strong. The general government deficit is projected to remain elevated at 4.6% in 2025, and to increase to 5.2% in 2026 due to deficit-increasing measures. The debt-to-GDP ratio is expected to increase slightly to about 75% in 2027, driven by elevated deficits and lower nominal GDP growth.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 0.4 | 2.3 | 2.1 |
| Inflation (%, yoy) | 4.5 | 3.6 | 3.5 |
| Unemployment (%) | 4.5 | 4.4 | 4.3 |
| General government balance (% of GDP) | -4.6 | -5.1 | -5.1 |
| Gross public debt (% of GDP) | 73.7 | 73.9 | 74.9 |
| Current account balance (% of GDP) | 0.1 | -0.3 | -0.4 |
Domestic demand remains the main growth driver
Real GDP remained unchanged compared to the previous quarter in 2025-Q3, following a decline of 0.2% in Q1 due to weak performance in industry and an increase of 0.5% in Q2 driven by services. Overall, real GDP is expected to grow by 0.4% in 2025 with consumption serving as the main driver of growth. However, the expected 3.5% growth in consumption is anticipated to be offset by rising imports and a decline in investment. Exports are set to decrease, notably due to a decline in manufactured goods and business service exports.
GDP growth is forecast to pick up to 2.3% in 2026, supported by fiscal stimulus, and then to ease to 2.1% in 2027. Consumption is projected to be supported by strong wage growth and fiscal measures. Investment is set to gradually recover and increase by 4.1% in 2027, driven by public investment, a pick-up in dwelling construction and improving business sentiment. Exports are projected to increase by 3.8%, aided by the launch of assembly facilities in the automotive industry, and to rise by a further 4.1% in 2027 as external demand picks up At the same time, this economic recovery is set to lead to an increase in imports shifting the current account balance from a surplus of 0.1% of GDP in 2025 to a deficit of 0.4% by 2027.
Risks to the outlook include continued weakness in investment and exports linked to developments in global supply chains. In addition, inflationary pressures could pose a challenge potentially exacerbated by high minimum wage increases and other government measures.
The labour market is expected to remain tight
The unemployment rate has been hovering around 4.5% over the last year. Job vacancies continue to fall and employment is forecast to grow by 0.2% in 2025. The pick-up in economic growth expected in 2026 is projected to raise private sector employment and lower the unemployment rate to 4.3% by 2027. With the labour market remaining tight, nominal wage growth is set to remain elevated in 2025 and 2026, driven by public sector and minimum wage increases. Wage growth is projected to moderate in 2027 as these impacts ease.
Inflationary pressures persist
Headline inflation rose from 3.7% in 2024 to 4.3% in September 2025, driven by an increase in food prices. HICP inflation excluding energy and food decreased from 5.9% to 4.9% over the same period, supported by declining services inflation, notably in telecommunication and financial services. Although government price regulations temporarily reduced inflation in 2025, prices are likely to adjust upward once those measures end. The recent currency appreciation, along with the expected moderation of commodity prices and somewhat lower wage growth, is set to moderate inflation in 2026 and 2027. Inflation is forecast to decrease to 3.6% in 2026 and remain elevated at 3.5% in 2027, factoring in the introduction of the ETS2 scheme, which, if not delayed, is anticipated to lift energy inflation in 2027.
An elevated and increasing budget deficit
After a significant decrease in 2024, the budget deficit is projected to decrease only slightly in 2025, to 4.6% of GDP. The cost of household energy subsidies continues to fall and interest expenditure declines due to lower coupons on inflation-linked bonds. However, public sector wage increases and other operating costs are expected to lead to strong growth in primary expenditure. Public investment is expected to grow moderately in 2025 as the decrease in spending on nationally-financed investment is outweighed by higher absorption of EU funds. Overall, the fiscal stance is expected to be expansionary in 2025, at -0.5% of GDP.
In 2026, the deficit is projected to widen to 5.1% of GDP, driven by new measures targeting households. Income tax revenue is expected to be impacted by the introduction of a personal income tax exemption for mothers and an increase in the family tax allowance, totalling an estimated 0.6% of GDP. New housing support measures for households and public workers are set to add a further 0.5% of GDP to the deficit. Further public sector wage increases, along with the already-announced bonuses for military and law enforcement employees, estimated at 0.5% of GDP, are projected to drive continued strong public wage growth. These will be only partially offset by the extension of sectoral taxes on windfall profits into 2026. In 2027, the deficit is forecast to remain elevated at 5.1%, in part due to the increasing cost of the income tax measures and the expiry of sectoral taxes. The fiscal stance is set to remain expansionary in 2026 and broadly neutral in 2027. Further measures under consideration, such as the introduction of a 14th month pension, could result in a higher deficit.
The debt-to-GDP ratio is projected to increase over the forecast horizon from 73.5% in 2024 to 74.9% in 2027, driven by elevated deficits and decelerating nominal GDP growth.