After stagnating in 2002, real GDP growth is set to recover only slowly. The economy will receive positive impulses from exports and stockbuilding in 2003 but growth will be limited by a loss in competitiveness and by fiscal tightening.
Unemployment is projected to rise, leading to somewhat lower wage increases, but the labour market will remain relatively tight. Inflation is projected to fall to 2 per cent by 2004, reflecting lower import prices and a decline in unit labour costs.
Sustained wage moderation is essential to restore competitiveness, especially in view of the risk that pension fund losses might necessitate a further increase in contribution rates. Incentives to work need to be strengthened, while higher expenditure on education, which is relatively low in comparison with other OECD countries, as well as on innovation, could contribute to better overall performance.