GDP declined somewhat in the first half of 2003, reflecting a sharp fall in exports and weaker domestic demand. Data for the thrid quarter show a pick-up in activity. Considering the extent of the slowdown, unemployment has increased only moderately. At the same time, the August heatwave and administrative price hikes have brought an end to declining inflation. Overall, economic activity is projected to continue strengthening through 2004, with GDP increasing by some 2½ per cent in 2005. The draft budget for 2004 calls for a substantial tightening of fiscal policy, principally from slower expenditure growth. For this objective to be met, effective action will have to be taken to ensure that past slippages in the deficit will not be repeated. Over the medium-term a comprehensive reform of the healthcare system would help contain overall government spending...