A strong recovery is finally under way, fuelled by the upturn in the US manufacturing sector and high oil prices. Growth prospects are expected to remain bright as domestic demand offsets the projected slowdown of foreign demand. Headline inflation has risen, mostly reflecting erratic factors, but core inflation has also turned up. Faced with rising inflation expectations, the successive moves to tighten the monetary policy stance during 2004 have been appropriate. On the fiscal front, the 2004 budget target will be easily met, thanks to higher-than-projected oil revenues. The supportive revenue environment should continue to be used to consolidate public finances. A revenue-enhancing tax reform is required to reduce the vulnerability of public finances to oil price changes. ...