After a 0.3% contraction in 2023, GDP growth is forecast to rebound to 1.7% in 2024. Private consumption is set to recover, supported by strong wage growth, whereas public expenditure is expected to remain strong, through additional financing for healthcare and research. The economy is forecast to pick up further in 2025, with GDP growth reaching 2.6%. A decline in energy prices and a broad-based slowdown in other price categories are set to bring inflation down to 1.6% in 2024 and 2.0% in 2025. Unemployment is projected to remain stable in 2024 and to decrease slightly in 2025. The general government deficit is forecast to increase to 2.8% of GDP in 2024 and to 2.9% in 2025.
| Indicators | 2023 | 2024 | 2025 |
|---|---|---|---|
| GDP growth (%, yoy) | -0.3 | 1.7 | 2.6 |
| Inflation (%, yoy) | 9.1 | 1.6 | 2.0 |
| Unemployment (%) | 6.5 | 6.5 | 6.3 |
| General government balance (% of GDP) | -2.2 | -2.8 | -2.9 |
| Gross public debt (% of GDP) | 43.6 | 44.5 | 46.3 |
| Current account balance (% of GDP) | -3.6 | -2.8 | -2.6 |
Private consumption and public expenditure set to drive growth in 2024 and 2025
In 2023, real GDP contracted by 0.3% due to weak private consumption and exports, whereas investment and public consumption expenditure showed strong growth. The labour market remained strong in 2023, with above-inflation wage growth of 12.6% supporting real disposable incomes.
Growth is expected to pick up in 2024 as real disposable income growth accelerates and households’ purchasing power strengthens. Public expenditure is set to remain strong, in particular through additional financing for healthcare and research. Additionally, EU-funded investments, including those financed by the RRF, are projected to pick up in 2024. Goods exports and imports are expected to slowly recover in 2024. However, services exports are not expected to recover before 2025 as the impact of loss of transport services export to Russia will be felt throughout 2024. In 2025, growth is forecast to pick up to 2.6% driven by domestic demand. The tight labour market is set to drive solid wage growth, supporting further expansion of real private consumption as inflation declines. Investments are expected to remain particularly strong, supported by EU-fund inflows and easing financial conditions. Export growth is projected to recover, in line with a general improvement in demand from main trading partners.
Labour market expected to loosen further
The labour market slightly loosened up in the last quarter of 2023 due to the temporary contraction of the economy in the second and third quarters of the year. The unemployment rate increased slightly, and the number of job vacancies fell. However, the labour market is expected to slightly tighten in 2024 and 2025 on the back of increasing demand and labour shortages caused by falling supply due to ageing. After reaching 12.6% in 2023, nominal wage growth is set to stay strong in 2024 and 2025, supported by labour market tightness and increases in minimum wage and in public wages.
Inflation set to ease rapidly
A decline in energy prices fuelled a rapid decrease of HICP inflation, as from the second half of 2023. The annual inflation fell to0.9%in the first quarter of 2024. Combined with a broad-based slowdown in other price categories, inflation is set to reach 1.6% in 2024 and 2.0% in 2025. Inflation excluding unprocessed food and energy is expected to remain above headline inflation, driven by services and processed food prices.
Deficit to slightly increase over forecast horizon
In 2023, the general government deficit stood at 2.2% of GDP, down from 4.6% in 2022. The decline in deficit was driven by better-than-expected revenue, the phasing-out of most pandemic-related support measures, and the lower fiscal cost of measures put in place to mitigate the impact of high energy prices (which dropped by 0.6 pps. to 1.0% of GDP). At the same time, wage increases for administration and medical personnel, additional financing for oncology, science and research, as well as public investment for defence and internal security drove expenditure growth upwards.
In 2024, the government deficit is projected to increase to 2.8% of GDP. The impact of the complete phasing-out of energy-related measures by the end of 2023 will be more than offset by additional expenditure on public wage increases for teachers and administration, healthcare and education, as well as supplementary payments to pensioners. Development of technical infrastructure on the country’s border will contribute to an increase in public investment expenditure. The introduction of corporate income tax advance payments from the financial sector, an increase in the rates for several excise products and additional dividend payments from state owned companies are expected to yield a moderate increase in revenue.
In 2025, the government deficit is forecast to increase slightly to 2.9% of GDP, based on unchanged policies. While both revenue and expenditure are expected to grow somewhat above nominal GDP, expenditure growth is set to slightly surpass revenue growth mainly due to the strong upward trend of EU-funded investment and the related national co-financing of EU projects.
The debt-to-GDP ratio reached 43.6% in 2023 and is forecast to increase to 44.5% in 2024 and 46.3% in 2025 due to positive stock-flow adjustment and budget deficits.