The recovery is projected to gradually strengthen. Economic growth is expected to broaden with rising exports and business investment owing to supportive financial conditions and improving external demand. Household consumption growth will be held back by fiscal consolidation and wage restraint. Inflation will pick up somewhat in 2016 as the effects of falling oil prices wears off.
Fiscal consolidation is set to resume, mainly on the spending side. Further structural reforms to secure fiscal sustainability and promote employment and competitiveness should be pursued, such as increasing the effective retirement age, reforming wage setting and shifting the tax burden from labour to less growth distortive taxes, such as consumption and environmental taxes.
Investment in the aftermath of the crises has been stronger than in other euro area countries. While recovery in business investments is set to continue, public investment remains subdued and low in international comparison, reflecting needed fiscal consolidation. However, further cuts to infrastructure spending may undermine future growth.