Economic activity picked up in the second quarter but stalled in the third. It is likely to recover and continue growing slightly faster than potential over the forecast period; the output gap should gradually shrink. Sustained by firmer activity, employment growth should gain strength and the fall in unemployment should continue, albeit at a slower pace than in 2006. Wage growth is likely to accelerate slightly and inflation to increase, while remaining moderate.
The government deficit is expected to diminish in 2006 as a result of slower public spending increases and substantial increases in tax revenues. The long-term challenge is to reduce the structural deficit and hence restore the sustainability of public finances in order to cope with the pressures of an ageing population. If any far-reaching improvement in the labour market situation is to be achieved, the cost burden on firms must be reduced and made more predictable and wage moderation must continue.
|Population (000s), 2005||60 873|
|Area (000 sq km)||549|
|GDP (Billion USD), 2005||1 896.4|
|Life expectancy at birth (Women, Men), 2004 ||83.8, 76.7|
|Total labour force (000s), 2005||27 475|
|Indicators||% change unless otherwise indicated|
|Household savings ratio||11.5||11.5||11.2|
|Consumer price index||2.0||1.4||1.6|
|Short-term interest rate (%)||3.1||3.8||4.0|
|Unemployment rate (%)||9.1||8.5||8.2|
|General government financial balance|
|Current account balance (% GDP)||-1.7||-1.8||-1.8|
No. 258/259, December 2006