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Higher oil prices and the easing of euro area tensions will allow economic growth to continue at above 4 per cent in 2012 and 2013. Inflation will rebound from record-low levels in the second half of this year as temporary favourable factors fade, before resuming a gradual downward trend. The budget is projected to remain in surplus in 2012-13, but the non-oil deficit will remain wide.
The government should use high oil prices to accelerate fiscal consolidation and restore the fiscal rules suspended during the 2008-09 global crisis. Given subdued inflation, the central bank can afford to wait for confirmation that the economy is continuing to grow at least in line with potential before beginning to tighten. The formation of a new government is a propitious moment to set out an ambitious programme of market-oriented structural reforms, which is needed to improve the business environment.
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