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After a slowdown in the second half of 2012, activity is projected to gather pace gradually, driven by stronger world trade and, in turn, business investment. In contrast, private consumption will remain depressed as real incomes decline further in 2013, reflecting cuts in social spending and private pensions, higher VAT and a deepening of the housing market crisis. Only in 2014 will growth return to potential and unemployment stabilise.
The 2013 budget aims to bring the deficit below the 3% Maastricht ceiling through an underlying fiscal consolidation of 1½ per cent of GDP. Additional consolidation of ½ per cent of GDP in 2014 is assumed in the projections. The automatic fiscal stabilisers should be allowed to support the economy in the event that growth proves lower than assumed in the budget. Discretionary fiscal space should be used if overall conditions deteriorate significantly.