Economic growth is projected to be robust and broadly based in 2015 and 2016. Exports will continue to be strong due to increasing demand in trading partners and the depreciation of the euro. Household consumption will gather pace with employment and wages rising steadily and with low energy prices.
Fiscal policy is expected to exert a smaller drag on activity than in past years. Strong revenue growth and low interest costs should be used for more rapid reduction of still-high public debt. Financial conditions have become favourable, but the problem of non-performing loans persists, impeding the full return to normal credit supply. Structural reforms should prioritise getting more people back into work, by making the tax and benefit system more efficient and enhancing activation policy.
Business investment will continue to rebound, expanding the capital stock at a pace consistent with robust long-term growth. The performance of government–supported financing tools, designed to help improve credit supply, should be carefully evaluated. Fast-rising property prices, both in the housing and office-building markets, are reminiscent of the bubble period of a decade ago. Further macro-prudential tools should be used, if necessary, to prevent investors becoming excessively exposed.