Last update (15/02/2024)
Real GDP is estimated to have contracted by 0.6% in 2023. This is a greater contraction than projected in the Autumn Forecast and is explained by negative growth in the first two quarters and a very modest rebound in the second half of the year. Private consumption and exports slowed down markedly in 2023, whereas investment and public consumption expenditure showed strong growth. The labour market remained strong, with wage growth above inflation supporting real disposable incomes.
Wage increases are set to decelerate in 2024 but are still expected to support a rebound in private consumption over the forecast horizon, as inflation is assumed to significantly ease. Additionally, EU-funded investments, including those financed by the RRF, as well as other public expenditure, are projected to remain strong in 2024. Export growth is forecast to remain slightly negative in 2024, mostly due to the effect of a negative carry-over. Overall, economic activity is set to recover in 2024 at a rate of 1.7%, below the 2.4% projected in the Autumn Forecast.
In 2025, growth is forecast to accelerate to 2.7%, slightly below the Autumn 2023 Forecast, driven by domestic demand. Investments should remain particularly strong, supported by EU-fund inflows and easing of financial conditions. Export growth is projected to pick up, in line with a general improvement in demand from main trading partners.
HICP inflation rapidly decelerated in the second half of 2023, driven by declining energy prices. However, the pass-through of high energy prices to other components, in particular services, accelerated during the year. Headline inflation averaged a still elevated level of 9.1% in 2023, with inflation excluding unprocessed food and energy posting 9.7%. In 2024, headline inflation is forecast at 2.2%, below the Autumn Forecast, as energy prices are expected to further decline. Inflation excluding unprocessed food and energy is set to remain above headline inflation, driven by price increases in services and processed food. In 2025, HICP inflation is projected to remain at 2.2%, slightly higher than in autumn, reflecting a slower disinflationary process.