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Growth has been robust in 2012, primarily supported by domestic demand, reflecting real wage growth and strong job creation. Despite intense utilisation of production capacity and low unemployment, headline and core inflation have remained in the lower part of the central bank’s tolerance range of 2-4%. With weakening global conditions, activity is projected to slow next year. As export markets – notably China – strengthen in late 2013, growth is projected to pick up again in 2014 to about 5½ per cent.
The economic slowdown in the coming year will help to keep inflation well within the central bank’s target band. The current stance of monetary policy should therefore remain unchanged. Fiscal consolidation has continued but further measures to close the structural budget deficit of 1% of GDP would contribute to strengthening the government’s financial buffer sufficiently to more readily address possible adverse developments. It would also be appropriate to expand the recently introduced cash transfers for the poor that combine support for recipients to find employment.