GDP accelerated in the second half of 2003, reflecting strong government consumption and rising investment. Accelerating exports, which initiated the recovery, were offset by very rapid imports in the fourth quarter. Unemployment appears to have stabilised at just below 10 per cent of the labour force and employment is now growing. Meanwhile administrative price hikes have contributed to a pick-up in inflation. Overall, economic activity is projected to continue expanding, allowing the output gap to begin closing in 2005. To achieve the fiscal consolidation planned for 2004 and 2005 (notably reducing the deficit below 3 per cent of GDP), substantial efforts beyond those so far announced will be required. A planned reform of the public health insurance system could contribute to a more rapid fiscal consolidation, but its impact on spending is likely to be felt principally over the longer term. Efforts to improve the functioning of labour markets should bolster employment growth and would also help to increase revenues and reduce public expenditure....