Activity is gradually accelerating as world trade strengthens and monetary conditions remain supportive. However, fiscal consolidation, subdued household income growth and a weak housing market will all weigh on domestic demand. The unemployment rate will stabilise in the course of 2014 but, reflecting the sizeable output gap and wage moderation, underlying inflation will decline further.
The authorities are committed to fiscal consolidation of ½ per cent of GDP in 2014 and 1¼ per cent in 2015, with the aim to balance the budget in structural terms in 2015. Achieving a balanced budget is appropriate in view of the high public debt, but if growth deviates from expectations, the automatic stabilisers should be allowed to operate. Building on the fiscal federalism reform, concluding a robust medium-term burden sharing agreement across government levels would facilitate fiscal consolidation.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.