Real GDP growth is expected to remain stable at 0.7% in 2025 and to rise to 0.9% in 2026. The economic expansion is set to be supported by domestic demand, in particular investment fuelled by RRF-related spending. Inflation is forecast to remain below 2% in both 2025 and 2026, on the back of negative import price dynamics and moderate domestic costs increases. The government deficit is projected to continue falling from 3.4% of GDP in 2024 to 3.3% in 2025 and 2.9% in 2026. By contrast, the debt ratio is set to rise over the forecast horizon, driven by the lagged impact of housing renovation tax credits accrued in the deficit until 2023.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 0,7 | 0,7 | 0,9 |
| Inflation (%, yoy) | 1,1 | 1,8 | 1,5 |
| Unemployment (%) | 6,5 | 5,9 | 5,9 |
| General government balance (% of GDP) | -3,4 | -3,3 | -2,9 |
| Gross public debt (% of GDP) | 135,3 | 136,7 | 138,2 |
| Current account balance (% of GDP) | 0,9 | 1,3 | 1,6 |
Resilient domestic demand props up output growth
In 2024, real GDP growth stabilised at 0.7%, with a moderate expansion in domestic demand and a robust contribution of net exports. Household consumption increased by just 0.4%, as the recovery in real disposable income was partly absorbed by a rise in the saving rate. Investment rose by 0.5%, with a surge in non-residential construction — largely supported by the RRF — more than compensating for declines in equipment and housing investment. The fall in imports, together with the strong expansion of service exports, led to a positive contribution of net exports to GDP growth.
Real GDP growth is forecast to settle at 0.7% in 2025. While domestic demand is expected to accelerate in 2025, US trade tariffs are set to affect exports of goods, while imports are still expected to expand on the back of strengthening domestic demand. Private consumption is anticipated to increase by 1.2%, broadly in line with real disposable income, fuelled by employment growth and recovering real wages. Gross fixed capital formation is set to pick up, with equipment investment recovering from the slump of 2024, as the gradual pass-through of monetary easing lowers financing costs. The rebound is nevertheless projected to be smaller than expected in the autumn, as increased uncertainty has reduced corporate confidence while the adverse and volatile market response to the trade tensions is set to have a tightening impact on broader financing conditions. Moreover, RRF grants are meant to support a further expansion in non-residential construction, implying that the national fiscal stance will be broadly neutral despite the ongoing fiscal adjustment. At the same time, the withdrawal of housing renovation incentives in 2024 is set to result in a deep annual contraction of residential investment.
In 2026, real GDP growth is expected to pick up to 0.9%. While private consumption is forecast to continue growing apace, investment is set to accelerate thanks to a further expansion in infrastructure construction and a lower drag from the housing component. Net foreign trade is expected to subtract further from GDP growth, as the full adverse impact of US tariffs is going to be displayed in 2026, although somewhat reduced by trade diversion to other export markets.
Slower job and wage growth
Employment is forecast to continue growing though at a slowing pace over 2025-26. The number of private sector employees, particularly with open-ended contracts, is still set to increase more rapidly than that of the self-employed. The unemployment rate is expected to fall further, as the labour force expands less than total employment, in the context of a falling working-age population. Wage growth is expected to moderate this year and in 2026, reflecting low inflation expectations and the need to maintain competitiveness in a more challenging trade environment.
Low inflation driven by falling import prices
The drop in energy prices and the euro appreciation exert strong downward pressure on headline inflation, keeping the 2025 annual rate below 2%. In 2026, wage restraint, increasing productivity and further falling energy prices are forecast to push inflation down to 1.5%.
Government debt ratio to rise despite primary surpluses
The general government deficit declined by 3.8 pps. to 3.4% of GDP in 2024, as a result of the phase-out of sizeable tax credits for housing renovations and support measures related to the energy crisis, together with buoyant revenues, particularly from taxes on personal income and financial assets. Public investment surged, driven also by RRF-financed projects. Primary current expenditure increased slightly, driven by the indexation of pensions to the high 2023 inflation and higher public-sector wages. The primary balance turned positive, from -3.6% in 2023 to 0.4% in 2024. At the same time, debt servicing costs increased by 0.2 pps., reaching 3.9% of GDP.
In 2025, the deficit is forecast to edge down to 3.3% of GDP, on the back of a marginal improvement in the primary surplus and unchanged interest expenditure as a share of GDP. The tax burden is expected to rise marginally, by 0.1 pps. of GDP, also due to the replacement of the 2024 tax wedge cut with a new bonus for low- and medium-income households and a new income tax credit, together with changes to ceilings and timing for specific deductions for financial institutions and insurance companies. Public wages are expected to grow moderately despite the additional funds allocated to the renewal of 2025-27 public sector wage contracts. The pick-up in RRF-financed projects is expected to drive the increase of capital expenditure.
In 2026, the deficit is expected to fall to 2.9% of GDP and the primary surplus to attain 1.1% of GDP on the back of moderate primary expenditure growth, while interest expenditure is projected to rise slightly to 4% of GDP.
The general government debt increased to 135.3% of GDP in 2024, from 134.6% the previous year mainly due to a debt-increasing stock-flow adjustment related to the lagged impact on cash borrowing of the tax credits for housing renovations, affecting previous years’ deficits. In 2025-26 the debt ratio is set to keep rising to 138.2%, driven by further debt-increasing stock-flow adjustments and interest-growth-rate differential.