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A patch of weak growth seems to be coming to an end thanks to prompt and strong policy support. Activity is projected to pick up quickly and then gradually ease to trend rates, driven by private consumption and investment. In the context of a tight labour market and recovering credit growth, inflationary pressures may resurface.
As the economy picks up, some monetary stimulus will need to be withdrawn to bring inflation back towards the target mid-point. Macro-prudential measures may be needed to contain credit growth. The structural factors underlying weak manufacturing performance should be addressed by further reducing the tax burden and tax complexity, deepening long-maturity financial markets and improving infrastructure. Limiting currency appreciation can provide only short-term relief for domestic industry, while measures reducing import competition will harm medium-term productivity growth.
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