Following a brief slowdown in 2002, growth is projected to recover to around 4 per cent in 2003 and 2004, reflecting buoyant domestic demand and stronger export demand. This should lead to a further decline in the still-high unemployment rate. Inflation is expected to decelerate over the projection period, influenced by lower food and energy prices. Inflationary pressures remain, though, because of the strong cyclical position of the economy.

Further efforts to control primary government expenditure are required to reduce the still high debt-to-GDP ratio and ensure fiscal sustainability. Recent reforms of the social security and tax systems are steps in that direction. More rapid progress in addressing the remaining structural rigidities in the labour market, a faster opening of network industries to competition and bold reforms in public administration would help towards the convergence of incomes to European Union levels.