Inflation is projected to reach 8.1% in 2022, falling to 5.8% in 2023, 3.3% in 2024 and 2.1% in 2025. This gradual decrease reflects the reduction in international commodity prices (energy, food and other), as well as lower demand pressures stemming from tighter monetary policy.
The labour market situation remains favourable in 2022, with employment expected to grow by 2.3%. Employment and the unemployment rate are projected to stabilise in 2023-25.
The uncertainty surrounding the projection is high, with downside risks to activity and upside risks to inflation. The main risk stems from more adverse spillovers from the invasion of Ukraine, notably the possibility of gas supply disruptions leading to production cuts and further price increases, as well as a decline in confidence. There is also a risk of stronger growth in wages and corporate profit margins. The materialisation of these risks would imply a higher persistence of inflationary pressures, with adverse impacts on activity.
Private consumption is forecast to grow by 0.2% in 2023 and 1%, on average, in 2024-25, after a 5.9% increase in 2022. In 2023, the marginal rate of change in private consumption will be associated with the lower financial buffer and rising prices and debt service. The recovery in 2024-25 will reflect the dissipation of uncertainty and moderate growth in real disposable income, amid lower inflation and stabilising interest rates.
Investment is expected to decelerate to 1.3% this year, with growth projected to be 2.9% in 2023 and 4.9%, on average, in 2024-25. Contained behaviour in 2022-23 is explained by the environment of high uncertainty, supply constraints, tight financing conditions and slowing demand. In the following years, the dissipation of uncertainty and improved demand prospects are expected to lead to higher growth.
After growing by 17.7% in 2022, reflecting the strong recovery in the tourism component, exports are projected to grow by around 4% in 2023-25. Goods exports are expected to grow by 3.5% in 2023 (after 6.3% in 2022) and by 4.1%, on average, in 2024-25, in line with developments in external demand and continued market share gains.
The current and capital account deficit is forecast to stand at 0.6% of GDP in 2022, returning to a positive balance of 1.9%, on average, over the period 2023-25.
Reducing inflation is the primary responsibility of monetary policy, but it must involve the coordination of the various economic agents for the benefit of society. In a context of loss in terms of trade of the economy – implying a real income loss that should be shared – it is important to coordinate expectations around the price stability objective of the European Central Bank, ensuring that increases in wages and corporate profit margins do not originate persistent inflationary pressures, with negative consequences for competitiveness and macroeconomic stability. In addition, broad-based fiscal stimuli should be avoided.
