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Growth has slowed markedly since mid-2011, with a deceleration in domestic demand only partly offset by surging exports. As a result, the large current account deficit has begun to narrow. However, the competitiveness gains, mainly stemming from the nominal exchange rate depreciation in 2011, have since largely been eroded, not least by persistently high inflation. Growth is projected to regain momentum on the back of recovering domestic demand, rising to around 4% in 2013 and exceeding 5% in 2014. Inflation and the current account deficit are projected to remain well above comfort levels.
Monetary policy should continue to focus on disinflation. Fiscal policy could play a more active countercyclical role if international and domestic conditions worsen. However, this should be done without undermining fiscal credibility. Fiscal credibility would be bolstered by introducing a public spending ceiling and publishing quarterly consolidated general government accounts based on international standards.