Growth is projected to weaken in 2015 as the fall in oil prices dents petroleum sector activity and investment, with spillovers on the mainland economy. A gradual recovery in 2016 will be supported by firming business investment in non-oil activities and stronger external demand. The unemployment rate is expected to drift up to slightly above 4% and wage growth is set to moderate. Inflation will remain low given the economic slack.
Monetary policy should remain accommodative, given the absence of inflationary pressures. An expansionary fiscal policy is appropriate in current circumstances. Rising house prices and mortgage lending require continued monitoring given high household debt levels. Improvements in competitiveness and productivity, including through product market reforms and education system improvements, are vital for broad-based growth.
The strong rise in petroleum investment in recent years has come to a halt amid cost-reductions by oil companies, the completion of several large-scale projects and the oil-price plunge. Stimulating investment in the non-resource sector hinges upon a more business-friendly tax system, lower administrative burdens and a more modern infrastructure. Planned improvements in transport and communication networks are hence welcome. Greater public spending efficiency would benefit growth potential.