Autumn Forecast

GDP growth in 2025 is expected to slow to below 1% (from 1.7% last year to 0.8%), well below what was expected in the spring. The deceleration is primarily attributable to weaker export activity, particularly in the first half of the year, reflecting the economy’s strong exposure to challenges in European industry. Against this backdrop, economic growth in 2025 will be driven mainly by domestic demand, especially household consumption, supported by robust employment and accelerating wage growth. Following stagnation last year, gross fixed capital formation is projected to expand moderately this year. Construction investment will increase and, given the high capacity utilisation in manufacturing, investment in production will also rise. Government consumption growth is expected to be more subdued than last year and below the levels envisaged in the spring. The slowdown primarily reflects weaker growth in social transfers in kind (following last year’s introduction of the mandatory health contribution) and in expenditure on goods and services, which had been elevated last year due to post-flood reconstruction efforts. Over the next two years, annual economic growth is projected to average around 2%. With somewhat stronger external demand, a recovery is anticipated in the export-oriented segment of the economy. Investment growth is also expected to be stronger, directed primarily towards expanding the capacity of the export sector and buildings and structures. Government consumption growth is expected to be volatile, reflecting the phasing-in of new entitlements under the long-term care system. Employment is projected to decline this year, and then largely stagnate over the following two years, while unemployment is expected to remain low throughout the entire period. This year, nominal wage growth will exceed last year’s growth, before easing somewhat thereafter, while real wage growth will exceed the rates observed a decade ago. Inflation in 2025 (2.9% year-on-year at end-2025) will be somewhat higher than last year, mainly due to higher food prices, and above the level projected in the spring, before declining over the next two years (towards 2.3%). The Autumn Forecast is subject to significant, mostly downside risks, primarily stemming from the international environment, including a possible escalation of trade tensions and heightened uncertainty, a deterioration of confidence in financial markets, and geopolitical risks. Domestic risks are mainly associated with capacity constraints in the implementation of large-scale investment projects and rising labour costs, although there are also some upside risks to growth.