In 2023, GDP is forecast to grow by 1.4%, hampered by high inflation weighing on private consumption and a delay in public investment programmes. Growth is expected to pick up by mid-year as inflation subsides and investment gains momentum. The economy is set to continue on this trajectory in 2024 with GDP growth reaching 2.8%. Inflation is expected to take some time to slow, staying close to double digit levels in 2023. By 2024, a decline in energy prices and a broad-based slowdown in other price categories are set to bring inflation down to 1.7%. Unemployment is forecast to decrease slightly in 2023 and then some more in 2024. The general government deficit is set to decrease to 3.8% of GDP in 2023 and to 2.7% in 2024.
| Indicators | 2022 | 2023 | 2024 |
|---|---|---|---|
| GDP growth (%, yoy) | 2,8 | 1,4 | 2,8 |
| Inflation (%, yoy) | 17,2 | 9,3 | 1,7 |
| Unemployment (%) | 6,9 | 6,8 | 6,5 |
| General government balance (% of GDP) | -4,4 | -3,8 | -2,7 |
| Gross public debt (% of GDP) | 40,8 | 39,7 | 40,5 |
| Current account balance (% of GDP) | -6,1 | -3,4 | -2,7 |
Private consumption and investment set to drive growth in 2023 and 2024
In 2022, GDP growth reached 2.8%, on the back of strong growth in private consumption and exports. Real private consumption growth started the year on a strong footing, but surging inflation and slowing employment growth put a brake to it.. Investment growth also slowed towards the end of the year hampered by surging construction prices and delays in EU-funded programme implementation. Exports benefitted from the post covid recovery in tourism as well as from high lumber and grain prices.
Growth is expected to be slower at the start of 2023, as real disposable income growth remains negative and households grapple with high heating bills. However, slowing inflation is set to provide a relief to households’ purchasing power lending a boost to consumption growth. Additionally, EU-funded investments, including those financed by the RRF, are projected to pick up in the second half of 2023. Export growth is expected to slow down due to weakening foreign demand, construction activity in particular. While growth is set to reach a brisk pace by the second half of the year, annual GDP growth is only expected to reach 1.4% in 2023 given the slow growth at the end of 2022 and the beginning of this year.
In 2024, growth is forecast to pick up to 2.8%. A marked slowdown in inflation is set to foster private consumption. A further increase in EU-funded investments and a decline in prices of construction materials are expected to boost investment. Export growth is projected to pick up as the inflation slowdown elsewhere in the EU boosts foreign demand.
Labour market expected to loosen temporarily
The slowdown of growth at the turn of the year is expected to loosen up the labour market slightly, as evidenced by recently falling job vacancies and the edging up of the unemployment rate. However, once growth picks up in the second part of 2023, the labour market is expected to tighten on the back of increasing demand and falling supply due to ageing. Wage growh is set to stay strong over the forecast period, supported by labour market tightness and minimum wage increases.
Inflation to slow gradually
Fuelled by energy price surge, HICP inflation increased rapidly throughout last year, averaging 17.2%. Both energy prices and consumer inflation peaked in early Autumn 2022, but have been declining only slowly since. Going forward, energy price inflation is set to turn negative and other price components, except services, to slow considerably. Overall, inflation in 2023 is forecast at 9.3%, with core inflation only slightly higher. By 2024, inflation is expected to slow down to 1.7%, but core inflation is projected to remain above 2% as services price growth is expected to accelerate.
Deficit set to decrease in 2023
The government deficit reached 4.4% of GDP in 2022, down from 7.0% in 2021 on account of substantially less pandemic-related support.
In 2023, the government deficit is forecast to drop to 3.8% of GDP, mainly due to lower projected expenditures as a share of GDP, as tax revenue is expected to grow close to nominal GDP. Deficit-decreasing contributions are expected from the phasing out of most pandemic-related support measures and to a somewhat lower projected fiscal impact of measures to cushion the impact of high energy prices. The net budgetary cost of the energy support measures is projected in the Commission 2023 spring forecast at 1.0% of GDP in 2023, compared with 1.5% in 2022. The Commission currently assumes a full phasing out of energy support measures in 2024. An additional deficit-lowering effect is expected from the discontinuation of 2022 budgetary support to create natural gas reserves to secure energy supply. At the same time, deficit increasing pressures are provided by expenditure measures included in the 2023 budget package, such as a wage increase for administration and medical personnel, additional financing for oncology, science and research, as well as a substantial public investment package for defense and internal security. Moreover, higher spending is expected for pensions and allowances, and to provide temporary protection to displaced persons from Ukraine. In 2024, the government deficit is projected to decrease to 2.7% of GDP. On the expenditure side, the impact of the expected phasing out of energy-related support measures after the first half of 2023 will more than offset the additional expenditure foreseen in the 2023 budget for 2024, including public wage increases and defence investment, as well as higher social benefit and interest spending.
The forecast also incorporates expenditure financed by the RRF grants, which is set to gradually increase from 0.3% of GDP in 2023 to 0.6% of GDP in 2024
The debt-to-GDP ratio is expected to reach 39.7% in 2023 and increase slightly to 40.5% in 2024 due to higher nominal GDP growth.