Domestic spending has remained solid, but demand from key trading partners has been slowing sharply. Output is nevertheless expected to grow at close to trend rates over the projection period, held up by domestic demand. An intended hike in the price of electricity next year will drive inflation up temporarily. However, tight labour markets and large minimum wage rises will exert more fundamental pressures.
The central bank needs to further tighten monetary policy to keep inflation under control. However, if the economy unexpectedly deteriorates, the authorities have the room to increase monetary and fiscal support. Lowering energy subsidies would create additional fiscal space to finance key development programmes. Continued commitment to free trade and investment will boost investor confidence and reduce vulnerability to any rapid reversal in capital inflows.