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Growth fell to an estimated 7½ per cent in 2012 – the lowest rate for over a decade. This reflects weak export market growth and the effect on domestic demand of government measures to cool inflationary pressures. This objective has now been achieved, including for property prices, and the authorities have started to ease the stance of macroeconomic policy. Going forward, the economy will still face external headwinds, but housing and infrastructure outlays are likely to revert to their longer-term trend. With domestic demand gathering renewed momentum, the current account surplus is set to shrink to 2¼ per cent of GDP by 2014, compared with the peak of 10% in 2007.
As growth picks up, the pace of public spending should be reined in but its re-orientation towards social services should continue. If economic prospects were to unexpectedly worsen, however, there would be room for monetary and fiscal stimulus. On the financial side, further interest rate deregulation and greater freedom for long-term capital movement would support growth.