Annual report 2023

The Irish economy experienced a 3.2% decline in GDP in 2023, amid volatile activity by large multinational companies based in the country. Adjusting for this factor, the domestic economy grew by 0.5%. Fiscal policy remained supportive, but windfall revenue from corporation tax allowed the Irish government to achieve a budget surplus and to issue less new debt than planned. It benefitted from credit rating upgrades, as borrowing costs increased across Europe. Irish banks’ financial positions remained sound and their profitability improved over the course of the year, as interest rates rose.

Greece recorded a robust economic performance in 2023, with GDP growing 2%, unemployment declining, and the government primary surplus increasing further. Public debt declined, and the country regained investment-grade ratings on its sovereign bonds by all but one major rating agency, effectively putting behind it a long legacy from the sovereign debt crisis. Inflation declined considerably, and external deficits also improved but remained high. Banks’ profitability and liquidity improved, and EU stress tests indicated greater resilience in the sector. Steadfast commitment to reforms and prudent policies are as critical as ever to maintain this positive direction.

The Spanish economy has shown resilience in the face of external challenges and political uncertainty. At 2.5%, real GDP growth was relatively stronger in 2023 than in recent years. The public deficit again contracted, aided by buoyant tax revenues, and banks’ profitability improved with an increase in interest margins. Market conditions remained favourable for government borrowing and with its long average maturity, Spain’s debt is less sensitive to interest rate movements. Implementing the new economic governance framework and the reforms and investments of the recovery and resilience plan will be key to reinforcing Spain’s medium term debt sustainability.

Cyprus’ economy grew by 2.5% in 2023, well above the euro area average. Strong government revenues produced a fiscal surplus and cut the debt ratio to a level not seen since before the sovereign debt crisis. Financing conditions improved over the year and Cyprus reached a milestone when it regained investment grade ratings from all major agencies. The banking sector recorded its strongest results in a decade, even if achieving sustainable profitability and reducing legacy non-performing loans remain challenges. Accelerating reform momentum, including through the implementation of Cyprus’ recovery and resilience plan, could strengthen economic and financial stability.

Portugal's economic growth moderated to 2.3% in 2023 due to tighter financial conditions and weak external demand. Inflation decelerated significantly. The general government budget recorded a surplus, supported by robust revenues. Public debt continued to decline significantly. Market access remained favourable, despite high sovereign bond yields. Portuguese banks’ profitability soared as interest rates rose and credit quality remained fair. Despite good market access conditions, low productivity growth and an ageing population pose challenges to debt sustainability. Implementing Portugal’s recovery and resilience plan and a commitment to prudent fiscal policies remain crucial to ensure resilience and fiscal sustainability.