Growth will continue to pick up in 2014 as the euro area gradually recovers and the pace of fiscal consolidation lessens. In 2015, growth and the unemployment rate are projected to stabilise even as the new EU VAT regime for e-commerce bears on competitiveness and a higher VAT rate slows demand.
The wage indexation system could transmit the price effects of the VAT increase to wages. The government has significant fiscal space and should let the automatic stabilisers work if growth is weaker than expected. Aligning financial regulations with EU and international initiatives is necessary to contain risks in the large financial sector. Reforms to enhance work incentives would reduce structural unemployment, while reducing barriers to competition and improving the education system would enhance growth potential.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.