GDP is projected to grow by 1.8% in 2026 and 2.1% in 2027, supported by domestic demand and a recovery in exports. Inflation is set to moderate from 4.4% in 2025 to 3.2% in 2026 and 3.1% in 2027, thanks to currency appreciation and easing domestic inflation pressures. The general government deficit is projected to increase to 6.2% of GDP in 2026 after the introduction of various deficit-increasing measures in late 2025 and early 2026, and to remain elevated at 5.8% in 2027. The debt-to-GDP ratio is expected to continue increasing to 76.8% by 2027, given the persistence of substantial deficits.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 0.5 | 1.8 | 2.1 |
| Inflation (%, yoy) | 4.4 | 3.2 | 3.1 |
| Unemployment (%) | 4.4 | 4.5 | 4.4 |
| General government balance (% of GDP) | -4.7 | -6.2 | -5.8 |
| Gross public debt (% of GDP) | 74.6 | 75.1 | 76.8 |
| Current account balance (% of GDP) | 1.7 | -0.2 | 0.5 |
Domestic demand remains the main growth driver
Real GDP grew by 0.5% in 2025, supported by strong consumption which benefited from substantial wage increases and a decline in household savings. By contrast, investment declined, and exports remained sluggish due do the weak performance of manufactured goods and business services. Economic activity increased in the first quarter of 2026 by 0.8% q-o-q, due to an increase in industrial production and sustained strong performance of services.
GDP growth is forecast to gain momentum in 2026-27, underpinned by domestic demand and exports, as well as improved confidence. Consumption is expected to remain a key growth driver in 2026, supported by strong wage growth and fiscal measures. However, consumption is set to moderate in 2027 as wage growth slows down. Investment is set to gradually recover and increase by 3.9% in 2027, driven by public investment, a pick-up in construction, supported by elevated housing demand and improving business sentiment. Export growth is projected to increase, boosted by the launch of assembly facilities in the automotive industry and the expected recovery in external demand. At the same time, elevated energy prices are set to deteriorate the terms of trade in 2026, and the current account balance is forecast to shift from a surplus in 2025 to a deficit of 0.2% in 2026 before returning to surplus again in 2027.
Risks to the outlook include continued weakness in investment and exports linked to disruptions in global supply chains and cost competitiveness losses. On the upside, restoring full access to EU funds would improve the macroeconomic and fiscal outlook.
Strong real wage growth fuelled by policy measures and a tight labour market
The unemployment rate declined marginally to 4.4% in 2025, although the number of job vacancies fell. The unemployment rate is forecast to remain stable, as labour hoarding decreases in line with the economic recovery. Nominal wage growth is set to remain elevated in 2026, driven by an 11% increase in the minimum wage, wage hikes in the public sector and an overall tight labour market. However, wage growth is expected to moderate in 2027 as the one-off public-sector wage hike fades out.
Currency appreciation moderates the inflationary impact of rising energy prices
HICP inflation averaged 4.4% in 2025, with HICP excluding energy and food reaching 5.9%. By March 2026 inflation had declined to 2.1% owing to a decline in food inflation, modest repricing of services and fuel price regulations which limited the impact of rising oil prices due to the conflict in the Middle East. The inflationary pressures from strong domestic demand and high wage growth are largely offset by a 7% currency appreciation in 2026. Inflation is forecast to decrease to 3.1% by 2027, driven by the moderation of energy prices and easing wage pressures.
An increasing budget deficit
The budget deficit narrowed from 5.1% of GDP in 2024 to 4.7% in 2025, largely due to falling interest expenditure—reflecting lower coupons on inflation-linked bonds—and cuts to public investment. In 2026, the deficit is projected to widen to 6.2% of GDP, driven by new measures targeting households and expenditure slippages. Income tax revenue is expected to decline due to the continued phasing-in of the personal income tax exemption for mothers and an increase in the family tax allowance, totalling an estimated 0.6% of GDP. In addition, the gradual introduction of a 14th month pension and new housing support measures for households and public workers are expected to increase the deficit by around 0.5% of GDP. Further public sector wage increases, along with bonuses for military and law enforcement employees paid in January that are estimated at 0.5% of GDP, are projected to drive continued strong public wage growth. Current expenditure overruns further add to the deficit. These are only partially offset by the extension of sectoral taxes on windfall profits into 2026 and an increase in the bank tax. Public investment is projected to increase after two years of decline. Overall, the fiscal stance is expected to be strongly expansionary in 2026, at -1.4% of GDP.
In 2027, the deficit is projected to remain elevated at 5.8% of GDP, in part due to the increasing cost of already legislated income tax measures and the 14th month pension, alongside the expiry of sectoral taxes. Interest expenditure is projected to remain broadly stable as a share of GDP, as sovereign yields have fallen but the stock of debt is growing. The fiscal stance is projected to be contractionary in 2027, at 0.4% of GDP.
Risks to the deficit include further expenditure slippages and possible repayments of tax revenues related to European Court of Justice rulings.
The debt-to-GDP ratio is projected to increase over the forecast horizon from 74.6% in 2025 to 76.8% in 2027. The increase in 2026 reflects the large deficit but is almost counterbalanced by the revaluation of foreign-denominated debt due to recent currency appreciation. In 2027, a stronger increase is forecast on the back of the persistently high deficit.