The economy is projected to grow by about 5% per annum in 2021 and 2022. Economic activity is expected to rebound from mid-2021 onwards, as a swift vaccination rollout supports the recovery of private consumption. External demand will strengthen with the recovery in major European trading partners. The labour market will continue to improve, while high wage growth and a recent currency depreciation will further add to inflationary pressures.
Fiscal policy will remain supportive as long as COVID-19-related restrictions are in place. The central bank has limited room for further easing given the elevated inflation rate. As the recovery gathers pace, the phasing out of temporary measures to preserve jobs and businesses is needed to enable an effective reallocation of resources. In the medium term, changing the tax mix is key: labour taxes should continue to be lowered to raise labour force participation and environmental taxes increased to promote more environmentally sustainable growth.