The expansion in domestic demand that began in the first half of 2004 has gathered pace, and GDP growth is expected to remain in the 4¾ to 6% range over the projection horizon. However, employment growth has disappointed, and the unemployment rate is not expected to fall below 17% until late 2006.

Fiscal policy outcomes have been good, but the plan to adopt the euro in January 2009 will remain credible only if strict adherence to planned expenditure cuts is achieved. Moreover, any sign of overheating or renewed exchange rate appreciation may require tighter fiscal policy.