This chapter describes how the global crisis hit the economy and the channels through which the external shock made itself felt. It then examines the policy response to the crisis before proceeding to consider the major medium- and longterm challenges confronting the authorities during the recovery. The most important of these concern the state of public finances. First, there is an urgent need for a clear and credible strategy for medium-term fiscal consolidation that would bring the general government deficit down from its current unsustainable level. Secondly, the authorities should move ahead with the reforms needed to address the fiscal consequences of rapid population ageing. Previous Surveys have identified this as a major long-term challenge facing the country, but structural reforms in healthcare and pensions, the two areas of greatest concern, have largely stalled. The current crisis has in some respects made it harder to advance reforms in those areas, but it has done nothing to diminish the need for them.