Activity is projected to pick up gradually as the economy responds to the sizeable exchange rate depreciation by switching to tradeables production. But the lower exchange rate along with fiscal stimulus will slow the dissipation of inflationary pressures as output falls below potential. Investment is projected to fall further before levelling out, while employment is expected to remain flat and unemployment to rise. Significant monetary easing from the second half of this year onwards should underpin the recovery, although the economy will still have spare capacity at the end of the projection period. Judgements around the timing and speed of interest rate cuts may be difficult: easing either too early or too late could carry significant costs.