Spring forecast

Economic growth will pick up this year (from 1.6% last year to 2.4%), albeit somewhat more modestly than we had forecast in the autumn (2.8%). Economic activity will benefit from continued investment growth, easing of inflationary pressures and a recovery in foreign demand, although this will be somewhat weaker than expected in the autumn. We expect a recovery in goods exports after last year’s decline and slightly higher growth in value added in manufacturing, while growth in services exports will be driven mainly by growth in tourism-related services. Growth in the export sector will be curbed by deterioration in competitiveness as a result of increased domestic cost pressure, particularly in terms of labour costs. We expect investment to continue to grow, driven by continued strong government investment activity, which is also linked to the recovery from floods and the implementation of the Recovery and Resilience Plan, renewed growth in investment in equipment and machinery as exports recover, and strong growth in housing investment. Private consumption is expected to rise as real income and employment increase. Inflation is expected to gradually moderate for most of this year but may pick up again slightly at the end of this year and the beginning of next year due to the base effect (the expiry of measures to curb high energy prices). According to our projections, inflation will approach 2% in 2026. Increase in employment and the decline in unemployment will weaken further this year; employment growth will continue to be hampered by labour shortages in the coming years. The uncertainties surrounding this forecast arise mainly from the geopolitical and economic situation in the international environment, while the risks in the domestic environment are related to the impact of deteriorating competitiveness on the export-oriented sector of the economy, the country's capacity to sustain a high level of investment activity and the incomplete planning of certain reform measures. On the other hand, the upside risks to economic growth arise mainly from a possible faster decline in inflation, more successful attraction of workforce and more efficient absorption of EU funds in conjunction with reform measures.