Against a backdrop of steadily improving external demand, new offshore natural gas production will provide an additional boost to output growth. Fiscal consolidation will restrain domestic demand, particularly in 2014. Inflation is currently low, but relatively tight labour and product markets may soon bring some price pressures.
The fiscal consolidation programmed in the 2013-14 budget should not be diluted, despite favourable surprises in revenues and spending growth. A return to more conventional monetary policy should now be on the horizon. Given a firming recovery and an inflation pick-up, increases in the base rate should begin and discretionary interventions in the foreign currency market should end when global monetary conditions normalise and capital flows stabilise.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.