GDP expanded 4.1% y/y in 1H26, supported by domestic demand and firm investment, while private consumption is expected to remain resilient on solid real wage growth and a supportive labour market. Investment momentum is forecast to ease as one-off factors fade and the RRF moves into its final phase, with external demand described as less certain despite recovering demand from key trading partners and new capacity in the automotive and pharma sectors. The FY26 GDP forecast has been revised up to 3.2% from 2.0%, followed by moderation towards 2.5% in 2027.
Inflation pressures strengthened in 2Q on renewed energy effects, then eased in July-August with headline inflation returning close to 3% y/y; energy remains the main source of volatility, services run above the headline, and food prices are an offset. Inflation is projected to average around 3.2–3.3% in 2026 before moderating towards 2.5% in 2027. Fiscal policy is framed as broadly supportive, with the 2026 deficit target just shy of 3% of GDP, while market pricing continues to be driven by global factors and spreads remain in the sub-40bp zone.
Economic Growth and Outlook
GDP expanded 4.1% y/y in 1H26, supported by domestic demand and firm investment, while private consumption is expected to remain resilient on solid real wage growth and a supportive labour market. Investment momentum is forecast to ease as one-off factors fade and the RRF moves into its final phase, with external demand described as less certain despite recovering demand from key trading partners and new capacity in the automotive and pharma sectors. The FY26 GDP forecast has been revised up to 3.2% from 2.0%, followed by moderation towards 2.5% in 2027.
Inflation and Fiscal Policy
Inflation pressures strengthened in 2Q on renewed energy effects, then eased in July-August with headline inflation returning close to 3% y/y; energy remains the main source of volatility, services run above the headline, and food prices are an offset. Inflation is projected to average around 3.2–3.3% in 2026 before moderating towards 2.5% in 2027. Fiscal policy is framed as broadly supportive, with the 2026 deficit target just shy of 3% of GDP, while market pricing continues to be driven by global factors and spreads remain in the sub-40bp zone.
