The economic expansion is set to be more subdued in the second half of 2023 due to the fading impetus of the tourism sector, weaker economic activity in main trading partners, the impact of tighter financing conditions on aggregate demand, and softer labour market dynamics. Households’ purchasing power, which is expected to benefit from the maintained easing of price pressures coupled with rising nominal wages, partially mitigates headwinds on private consumption. In addition, the lower leverage of the private sector achieved in recent years and the resilience of the banking sector is set to contribute to the mitigation of financial risks, while the implementation of the RRP is expected to continue supporting investment growth over the forecast horizon.
Overall, GDP growth is expected to reach 2.2% in 2023. This represents an upward revision, by 0.3 pps., compared to the Spring Forecast, reflecting a higherthan-projected carry-over from 2022 and the robust outturn in the first half of 2023. In 2024, real GDP growth is forecast to moderate to 1.9%, 0.1 pps. less than projected in the spring, as the softening of economic activity expected towards the end of the year is set to extend at least into the first half of 2024.
Annual HICP inflation is forecast to moderate to 3.6% in 2023, on the back of the continued deceleration of energy inflation since the third quarter of 2022. A further slowdown to 2.9% is projected for next year despite the upward pressure from the expected phasing out of government measures implemented to mitigate the impact of high energy prices. HICP inflation excluding energy and unprocessed food is set to decline more gradually as the pass-through of high energy prices to other items, especially food and services, lingered throughout the first half of 2023. Second-round effects on wages have been limited so far, despite the moderate pick-up in both nominal and real terms observed in the first half of this year.