Output growth seems likely to decelerate somewhat this year from the 4½ per cent growth of 2002 as the fiscal impulse is withdrawn while effects of price liberalisation and structural reforms initially damp demand. Inflation had decelerated to 3 per cent due to transitory factors and is picking up again temporarily as a consequence of energy prices increasing toward cost-recovery levels. The high current account deficit is expected to narrow as exports from foreign-controlled firms come on stream.

The scheduled tightening of fiscal policy is welcome, as an excessive loosening occurred last year. This should allow the central bank to soften the exchange-rate impact of strong capital inflows, helping domestic industry to maintain cost competitiveness. The determined pursuit of the ambitious structural reform programme is commendable and should lift productive potential towards levels already achieved by other accession countries in the region.