GDP increased by 3.7 per cent in 2003, driven by strong export growth following the depreciation of the zloty. A projected rebound in investment activity due to improved profitability and European Union accession should permit growth to reach around 4½ per cent in both 2004 and 2005.Unemployment is expected to begin falling towards the end of 2004 as employment starts to expand, while the still large output gap should keep inflation pressures in check. Following the sharp relaxation of fiscal policy in 2004 and the rapid build up of public debt, the planned public expenditure reform needs to be implemented and even reinforced if medium term fiscal sustainability is to be preserved. Such a tightening of fiscal policy could also serve to reduce inflationary pressures, opening the way for a further reduction in interest rates...