Economic growth is projected to resume in 2015 after three years of contraction. Nevertheless, sluggish incomes and high unemployment will continue to weigh on private consumption and remaining spare capacity will delay investments. A pick-up in exports on the back of the global economic recovery and the weaker euro should progressively spill over to the domestic economy.
The fiscal deficit exceeded 3% of GDP in 2014 for the first time since the mid-1990s and is expected to fall only slowly. The new government will need to restore fiscal sustainability without prejudice to the incipient recovery. Structural reforms to raise employment and enhance the efficiency of public services will be essential.
Business investment is expected to recover slowly, as demand picks up and capacity utilisation rises. Slow income growth, high unemployment and uncertainty hold back residential investment despite low borrowing costs. Public investment has been steadily growing since 2010 and will rise further in 2015, but is then set to weaken as fiscal constraints tighten.