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Economic growth is projected to strengthen and become more broad-based. Inflation is falling, as monetary policy remains restrictive, raising households’ purchasing power and lifting consumer spending. Infrastructure outlays, improvements in the business environment and rising capital flows will boost investment. Exports will benefit from the recovery in Brazil. The labour market will improve gradually as the recovery picks up.
Fiscal policy will be moderately contractionary to reduce the deficit while safeguarding the recovery. Monetary policy will remain appropriately restrictive to bring down double-digit inflation. Growth and jobs would be boosted by wide-ranging structural reforms, including a comprehensive tax reform to simplify the system and improve fairness. Efforts to reduce inequalities in access to quality education would make growth more inclusive.
The financial system remains small. Bank credit to the private sector and stock market capitalisation are well below the levels of OECD countries. Long-term finance is almost non-existent, constraining investment and growth. Household and corporate sector debt are low. The main challenge for financial stability will be to monitor and avoid vulnerabilities as the financial sector expands.