Growth is projected to slow to around 1½ per cent in 2015 before rebounding in 2016. The recent fall in oil prices has resulted in declines in related investment and GDP. However, substitution towards non-energy exports is underway, supported by the currency depreciation and stronger foreign-market growth. Non-oil related business investment should strengthen with a lag. Following recent weather-related weakness, consumption growth should pick up. With economic slack fully absorbed, inflation is projected to return to the 2% midpoint of the inflation target range by mid-2016.
Monetary accommodation is assumed to be progressively withdrawn from early 2016 to counter inflationary pressures. High household debt and house prices pose financial-stability risks, and further macro-prudential measures may be required should these risks increase. Fiscal consolidation should continue as planned. Barriers to foreign direct investment should be reduced and continued efforts placed on increasing the quality and quantity of R&D.
Business investment stands above pre-recession levels. This partly reflects the expansion of the oil and gas sector; however, investment plans have been pared back with the fall in oil prices. Nevertheless, financial conditions remain supportive for investment overall and higher demand for non-energy exports and related capacity requirements should support investment in the medium term.