Demand has slowed considerably, reflecting weak export market growth and household and business caution. Growth prospects should brighten as the international situation improves and firms gain sufficient optimism to increase investment and hiring. Wage and price inflation pressures have eased as output has slipped below potential and are likely to remain contained over the projection period. A neutral fiscal stance, with automatic stabilisers working to cushion output fluctuations, remains appropriate. But the government’s strategy for managing public finances prudently could be put at risk if local government spending continues to slip. A faster pick-up in activity than projected could put upward pressure on wage inflation as the output gap closes. Further labour market reforms would not only help to address such risks but also reinforce the longer-term budget position...