Activity is estimated to have contracted in 2003, reflecting a further fall in private domestic demand and weak external markets. However, both have turned around from mid-year and a gradual recovery is projected for 2004 and 2005. The output gap will nevertheless remain large in 2005, and the unemployment rate high. In this context, the inflation differential vis-à-vis the euro area should continue to narrow. The recession brought a halt to the reduction in the fiscal deficit, despite continuing consolidation efforts. Continued forceful implementation of already-approved structural measures is essential to rein in public spending. Additional measures will be needed to reduce the structural deficit further over the medium term...