Real GDP is projected to grow by 2.4% in 2025 and 2.1% in 2026. A tight labour market and strong nominal wage growth will lead to higher real incomes, supporting consumption growth. Easing of financial conditions, higher absorption of EU Recovery and Resilience funds and the expected recovery in foreign demand will increase investment and exports. On the other hand, higher taxes will weigh on growth, in particular through subdued consumption and investment. Headline inflation is expected to rise to 4.4% in 2025, on account of higher gas prices, increased VAT rates and other tax increases. Downside risks mainly relate to increased geopolitical tensions and slower-than-expected growth in Europe.

Persistent labour shortages should be addressed by extending working lives and increasing participation of mothers in the labour market, by reconsidering the long parental leave, improving access to affordable high-quality childcare and ensuring flexible working arrangements. A credible strategy is needed to enhance the efficiency of public spending, including further reforms to the pension system and family benefits to improve fiscal sustainability.

Real GDP grew by 0.3% quarter-on-quarter in the third quarter of 2024, according to the flash estimate. Growth appears to be driven by strong private consumption on the back of rising real incomes as inflation slowed, while investment weakened. Business sentiment and retail sales have improved a little recently, pointing to moderate growth in the near-term. Harmonised consumer price inflation has risen to 3.5% in October, reflecting higher food prices and persistent service price growth. Harmonised core inflation remained elevated at 4.3% in October. Real wage growth turned positive in the last quarter of 2023 and has continued to strengthen this year. The labour market is tight, with the unemployment rate below pre-pandemic levels and persistent labour shortages across sectors.

New orders of transport equipment have continued to slow, reflecting weaker demand in Europe. Goods exports have declined compared with last year. Lending to the private sector has continued to slow due to still high – albeit decreasing - interest rates. Residential property prices rose in the first half of 2024 yet remain below their peak in the third quarter of 2022.

Parliament adopted a consolidation plan in October 2024, aiming to reduce the general government deficit to below 3% of GDP in 2027. Improvements in the fiscal balance sum to around 2.0% of GDP in 2025 and 2026 and mainly affect the revenue side Special levies are introduced on refineries and mobile operators. For larger companies (above EUR 5 million taxable income), corporate income taxes will increase to 24% from 21%. Social contributions will increase for high-income employees (with salaries 11 times the average wage). A financial transaction tax for companies and self-employed workers is also being introduced from 2025. The tax will be collected on some bank transactions and ATM withdrawals. The basic VAT rate will increase to 23% from 20%. There are also increased fees for motorway stamps, tolls and vehicle taxes for companies. At the same time, the budget includes an increase in spending on childcare, social services and remuneration for the armed forces, as well as subsidies for culture and the Environmental Fund. Electricity support measures to households have also been extended into 2025. The projections assume that the budget deficit will fall from 5.7% in 2024 to 4.7% in 2025 and 3.6% in 2026.

Better financial conditions and increased usage of EU Recovery and Resilience funds will support investment in 2025 and 2026. Exports are projected to grow broadly in line with the expected recovery in foreign demand. Increasing real incomes will drive a recovery in private consumption and enable some rebuilding of households’ savings. Meanwhile, higher tax rates will contain growth in consumption and investment. and together with higher gas prices will push headline inflation to 4.4% in 2025, before it falls back to 2.7% in 2026. Underlying inflation will rise, due to wage increases and indexation of benefits to past inflation. Increasing economic uncertainty and weaker foreign demand would negatively affect trade and investment. Lower than assumed fiscal consolidation could add to inflationary pressures and increase public debt.

Labour shortages are persistent. Prolonging working lives – including by tightening pathways to early retirement can mitigate spending pressures and help alleviate labour shortages. Increasing employment of mothers would mitigate the effects of shrinking labour force. This will require better access to affordable and high-quality childcare, flexible working arrangements, and a shortening of the current long parental leave. A credible strategy is needed to durably improve the efficiency of public spending and address the looming challenges of rapid population ageing. Better project preparation, and implementation capacity can help improve the efficiency of public investment spending and maximise the impact of substantial inflows of EU funds. Expanding work-based learning, improving the quality of tertiary education through targeted funding, strengthening incentives to participate in adult learning and increasing training for the unemployed would help reduce skill imbalances, retain and attract high skilled people, and boost productivity. Tax exemptions for the use of fossil fuels should be phased out and reforms that shift the burden away from labour towards property and environmental taxes could support growth.