Despite a high number of infections and fatalities, the economy recovered strongly at the end of 2020. GDP growth is expected to reach 3.7% in 2021 and 2.5% in 2022, driven by a progressive increase in household consumption and investment. Inflation has picked up recently and is projected to be above target over the projection period.
Increasing inflation is making the fiscal and monetary policy mix more complicated. While still set to remain accommodative, the expected further tightening of monetary policy will reduce support to the economy. At the same time, the government has limited space for further fiscal support as public debt approaches 90% of GDP. In this context, measures to rapidly control the epidemic are key, notably an acceleration of the vaccination campaign and better contact tracing. Reforming fiscal policy would increase the government’s capacity to support the economy to face new crises and increase public investment to lift potential growth. This should be accompanied by structural reforms to enhance domestic and external competition and improve the business climate.