Modest deceleration ahead

The 2025 outturn surprised on the upside. BHAS 4Q release show that the economy had grown 2.1% y/y across the year, with the fourth quarter itself coming in at the same 2.1% y/y pace. That left full-year growth 0.3pp above our previous forecast. The drivers were unmistakably domestic. The 2026 outlook is now better framed as a modest deceleration with risks tilted to the downside.

Inflation in 2025 averaged 4% y/y. That said, even before the energy shock, the underlying inflation pulse from services and food was running far hotter than the headline suggested. While January and February looked like disinflation is back in play, March broke the trend as headline jumped to 5% y/y, the strongest monthly print in almost three years, while April pressure was even stronger as the headline reached almost 7% y/y. The key swing category was transport signaling shock spilover started.

On the external side, we expect the current account gap to widen by 0.8pp to −3.9% in 2026 on the goods-trade deterioration and services-balance erosion and then narrow to −3.2% in 2027 as the energy impulse fades, exporters adapt to CBAM and the underlying goods trade gap re-narrows.

We still don’t have official FY25 budget gap figures, but we hold our view that the situation deteriorated and expect the gap at 2.5% of GDP. We expect further deterioration as 2025 indexation decisions are now fully in display, energy shock relief measures weigh on the expenditure side and loss of revenue due to CBAM hit to the state-owned electricity producers. Public debt, albeit drifting higher, remains relatively low.

In May High Representative Christian Schmidt informed everyone of his decision to resign. His departure will now likely trigger a political battle over the OHR's future at the worst possible moment, with the October general elections only five months away. In early October voters will participate in multiple elections on different levels.

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