An erratic export-led recovery started in early 2013, after six quarters of contraction. Growth is expected to gather pace in 2014, as fiscal consolidation will make a pause and external demand accelerates. The recovery will be sufficiently strong to gradually narrow the output gap, although unemployment will decrease only marginally due to an unwinding of labour hoarding.
The government plans to have a broadly neutral fiscal stance in 2014-15, resulting in a deficit of just under 3% of GDP through the projection period. Positive growth surprises should be used to halt and eventually reverse the rising debt-to-GDP ratio. Monetary policy should remain accommodative as inflation is low and expectations appear well anchored. Intensified active labour market policies are needed to keep high unemployment from becoming structural.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.