GDP increased markedly in the first half of 2004, driven by strong increases in inventories and exports. Activity should continue to be robust in 2005, although less so than in the beginning of 2004. Export growth should decrease slightly, in part due to recent zloty appreciation. An investment recovery is under way but is likely to gain force only in 2006. Employment is expected to expand moderately in 2005 and more robustly in 2006 as investment picks up. The effect on the budget deficit of a relaxation of government spending in 2004 has been partly offset by robust growth; with the moderation of GDP growth projected by the OECD, public expenditure targets will need to be monitored closely and even reinforced if medium-term fiscal sustainability is to be preserved. Although the upturn in headline inflation may be only temporary, increases in central bank interest rates have been appropriate in the light of wage growth and the budgetary position. Further increases may be necessary if inflationary pressures continue. ...