Economic conditions have deteriorated markedly and forward-looking indicators suggest a further sharp weakening in activity over the next quarters. The adjustment in the construction sector is expected to continue, while house prices are likely to fall further. These factors, combined with turmoil in the banking and financial sectors, are already cutting domestic demand. Growth may resume only in late 2009. Unemployment is set to rise rapidly, but should stabilise in 2010. Inflation should recede, reflecting the recent falls in energy and food prices and the increasing output gap.