Growth remains weak and heavily dependent on foreign demand, but both non-residential investment and -- somewhat later -- household consumption are projected to pick up in the course of 2005, leading to GDP growth of 1¾ per cent in 2006, sufficient to allow the output gap to begin to narrow. The general government deficit is projected to be 3½ per cent this year and to remain above 3% in 2006.

For economic performance to be raised in a durable way, reforms have to be continued and deepened within a coherent framework. Fiscal consolidation needs to be linked to more fundamental reform, requiring, inter alia, untangling responsibilities across different levels of government and continued reform of the social security system. Subsidies and tax expenditures should be reduced so as to create room for further cuts in statutory income tax rates.