GDP fell slightly during the first half of 2003, despite a significant fiscal stimulus to public and private consumption. A pick-up in world trade is likely to contribute substantially to growth over the coming years and the current negative output gap should close by 2005. Tax cuts implemented in the summer and proposed for the 2004 budget will sustain demand but pose a challenge to the government’s objective of balancing central government finances by 2007. Cuts in labour taxes are welcome if accompanied by spending restraint, but further fiscal stimulus would risk being pro-cyclical, and make it more difficult to cope with the future fiscal implications of ageing...