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The economy has slowed, with the weakness focussed in manufacturing and investment spending. Softening external demand, together with continued strength in imports, led to a widening current account deficit. Although inflation has moderated from double-digit rates it remains relatively high and expected increases in regulated prices of some oil-related products will add to price pressures which will continue to weigh on household consumption. This in turn will make the climate for investment less favourable. As a result, growth is expected to remain subdued through much of the year.

Monetary policy easing has begun but further action will be constrained by inflationary pressures and limited spare capacity. Fiscal slippage caused the central government budget deficit to rise in the 2011-12 fiscal year. The government plans modest fiscal consolidation this year, which would help reduce inflation, narrow the current account deficit and promote more balanced growth. However, spending pressures, notably on subsidies, are again likely to result in overruns.