Abstract
• The government's new plans for departmental spending are affordable, but the fiscal loosening does pose a threat to the outlook for inflation and interest rates.
• Growth will pick up next year as export performance improves because of greater buoyancy in world trade and the fall in the exchange rate.
• In order for inflation to stay on target in 200I, interest rates will have to rise by half a percentage point by the start of next year.
• The upward pressure on interest rates will be limited by a decline in the growth of private sector spending as households increase their saving rate and non-manufacturing business investment increases less rapidly.
• Inflationary pressures should also be restrained by a recovery in productivity growth.
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