|Economic growth was considerably more robust than expected in 2013, reflecting strong exports and buoyant tourist spending. Significant employment gains and policy decisions to reduce household debt will stimulate private consumption and further fuel the recovery in 2014. As a result, unused production capacity will disappear in the course of 2015.
Fiscal consolidation will continue in 2014. The household debt relief plan will increase spending, but this will be financed by revenue measures, mainly a higher tax on banks’ total debt. It will be necessary to raise nominal interest rates as spare capacity in the economy disappears. Reforms to raise output potential, notably by stimulating investment, would ease supply constraints, thereby weakening inflationary pressures. In particular, lifting capital controls would send a positive signal to foreign investors.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.