In the absence of further major shocks, GDP growth is projected to be 5.7% in 2021 before easing to 3.4% in 2022. Following significant but unsustainable quasi-fiscal stimulus, changes to more sustainable macroeconomic policies late in 2020 were altered at the end of the first quarter of 2021, disrupting market sentiment and expectations. The surge in infections which appears to have peaked in May, new confinement measures and the gradual phasing out of job retention schemes will affect employment, incomes and private consumption from the second quarter of 2021.
The macroeconomic policy mix should be strengthened considerably. The government should rely more on direct fiscal support to vulnerable households and firms instead of concessional loans. Monetary policy should unambiguously target disinflation. Policy credibility is essential to secure the international funding required to finance the external deficit and to roll over maturing external debt safely. Reducing employment costs and promoting more flexible employment forms would boost job creation. Widening equity capital sources would help reduce high corporate leverage and promote the growth of promising businesses.