After moderate growth in early 2012, activity stagnated in the latter half of the year due to softening external demand and deteriorating confidence, which offset gains in real disposable income and generally favourable financing conditions. Both domestic and external demand will benefit from gradually improving confidence and strengthening world trade over the forecast horizon, and growth is projected to reach 0.8% in 2013 and 1.8% in 2014.
The consolidation programme enacted in early 2012 strikes an appropriate balance between growth and fiscal sustainability considerations; the automatic stabilisers should be allowed to work freely around the implied structural improvement. However, consolidation measures after 2013 should be further specified. Available discretionary fiscal space should be used if economic conditions were to deteriorate significantly. Support to medium-sized banks may require additional measures, which should be financed so as not to endanger the fragile recovery.