Activity has been strong so far in 2007, despite the impact of forest fires and a slowing of housing investment towards a more sustainable level. Growth is set to weaken in 2008, before edging up to around 4% in 2009. Inflation is likely to rise in light of demand pressures and the current account deficit is expected to remain large.
The correction of fiscal imbalances has been impressive, but consolidation needs to continue, given the sizeable future costs from population ageing. Long-run fiscal sustainability requires strict control of primary spending and wide-ranging reforms of the pension and healthcare systems. Greater administrative efficiency is also critical. Fostering competition in key network industries and reducing labour market rigidities are essential for maintaining strong growth while keeping a lid on inflation.
No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
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