Economic growth is projected to slow but remain fairly robust, and unemployment will decline somewhat further. As the effects of cheaper energy wane and the labour market tightens, inflation should gradually increase. In contrast to slowing internal demand, exports growth will remain dynamic, which, with terms-of-trade gains, will widen the already large current account surplus.
After a marked deterioration of the structural fiscal deficit in 2014, the authorities should return to a process of improving their underlying budget position to sustainably reduce debt and expand the fiscal manoeuvre room. By the end of the projection period, there will be little economic slack left, which may require the central bank to raise policy rate to contain inflation pressures. Pro-competitive structural reforms in product markets are the key to stronger and more inclusive growth. Further lowering of labour tax wedges would boost employment. Planned measures to improve the business environment for banks and foster a clean-up of their portfolios should be fully implemented.
Gross fixed capital formation has grown vigorously over the past two years, mainly on the back of public investment and foreign direct investment in export-oriented manufacturing. In contrast, investment in housing and in sectors reliant on the domestic market has recovered less. Public investment is set to slow and even decline. The reforms outlined above in banking and product markets will be key to broad-based private investment growth.