Although house prices have held up better than in many other countries, the construction sector is also slowing. Despite rising unemployment, core inflation may persist, owing to automatic wage indexation.

While automatic stabilisers should be allowed to operate fully, additional fiscal stimulus might not be very effective nor advisable, given an already strongly rising public deficit and the high level of public debt. Fiscal sustainability needs to be secured through measures to achieve medium-term expenditure restraint at all levels of government as well as reforms to limit upcoming ageing costs.

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©OECD Observer No 274, July 2009