GDP increased by 3 per cent year-over-year in the first half of 2003, driven by strong export growth following the depreciation of the zloty. Improved profitability and rising consumer demand are projected to broaden the base of the recovery, allowing growth to strengthen and reach 4½ per cent in 2005. Unemployment is expected to begin falling towards the end of 2004 as employment starts to expand, but the still-large output gap should keep inflationary pressures in check. Substantial cuts in nominal interest rates and the depreciation of the zloty have eased monetary conditions, but real interest rates remain high, indicating scope for further relaxation. For this to happen, and in order to prevent the emergence of an unsustainable current account deficit, an already relaxed fiscal stance needs to be tightened rather than loosened as currently proposed...