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The economy is projected to continue contracting throughout 2012, as budgetary consolidation and deleveraging in the private sector weigh on domestic demand. Expanding world trade and competitiveness gains will allow for stronger export growth. Real GDP is expected to fall by 1½ per cent in 2012 and then by a further ¾ per cent in 2013. The unemployment rate will rise above 25%. The budget deficit is projected to fall from 8.5% of GDP in 2011 to 3.3% in 2013.

To strengthen credibility, a medium-term plan with permanent deficit-reducing measures should be introduced, including higher VAT revenues and stronger environmental taxation, and measures to control regional government deficits need to be fully implemented. Comprehensive labour market reform is expected to boost employment prospects in the medium term. Access of unqualified young unemployed to vocational education and training should be widened and job placement services should be reformed. The difference in the cost of dismissing workers on new permanent and temporary contracts should be reduced further, moving closer to a unified contract.