The banking sector has not experienced serious difficulties, largely because of limited exposure to toxic assets. Growth will only turn modestly positive at the end of this year.
The new government has made a commitment to limit cyclical increases in the budget deficit. The spending rule should be maintained for immediate budgeting purposes (even though it could later be improved), but ambitions for further income-tax cuts should be curtailed. As conditions normalise, monetary policymakers should re-establish business-as-usual inflation targeting by terminating quantitative easing and intervention in the foreign-exchange market.
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©OECD Observer No 274, July 2009