GDP growth is projected to ease to 1.2% in 2026, due to the continued effect of budgetary tightening on consumption and to the drag from global uncertainty, before edging up to 1.3% in 2027, supported by business investment and exports as financial conditions and global trade improve. Renewed price pressures are expected to be transitory, with headline inflation remaining elevated at 2.5% in 2026 and easing to 2.1% in 2027, though staying above target over the entire period. Slack will emerge in the labour market, as employment and vacancies fall, with the unemployment rate projected to reach 5.0% in 2027.

The monetary policy stance is expected to become neutral as the easing cycle ends. At the same time, fiscal policy will remain restrictive given high government borrowing costs, as well as large, albeit declining, budget deficits and rising public debt. Continuing to ensure that consolidation is carefully timed, given substantial downside risks to growth and upside risks to inflation, and well-calibrated, with a combination of revenueraising measures and spending cuts, is essential. Tax and spending measures should also aim to further support growth potential, complementing ongoing structural reforms such as the overhaul of infrastructure planning and the simplification of financial services regulation.