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The economy will enter a steady expansion path only during the second half of 2012 as exports gain traction from faster world trade. Fiscal consolidation, low capacity utilisation and profitability, and high unemployment will subdue domestic demand.

Fiscal consolidation in 2012 amounts to about ¾ per cent of GDP and should suffice to reduce the public deficit to 2.8% of GDP. About a fifth is one-off measures and the rest is equally divided between spending and revenue measures. Consolidation of another 1% of GDP is assumed for 2013. Durable consolidation will have to depend on spending measures, particularly to curb ageing-related cost increases in pension and health spending. The automatic wage indexation mechanism should be reformed to prevent further erosion of external competitiveness.