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After a significant downturn, the economy should start recovering in the second half of 2012, mainly due to stronger world trade, which will feed into higher business investment. On the other hand, private consumption will remain depressed given sluggish growth in real incomes, reflecting higher unemployment and only modest real wage increases, as well as planned pension cuts and a depressed housing market. A further drag on growth comes from the planned fiscal consolidation. Overall, growth is set to remain below potential throughout 2012-13, and unemployment will rise further.

A fiscal consolidation of 1% of GDP is being implemented in 2012. For 2013, the projection incorporates additional consolidation of about 1½ per cent of GDP to meet the Maastricht deficit target, consistent with the agreement brokered by the caretaker government following the government collapse in April. If downside risks materialise, the automatic stabilisers should be allowed to support growth. To secure fiscal sustainability, planned measures to curb ageing-related spending growth in the area of pensions and health care should be implemented.