Economic growth is expected to slow to about 2% in 2008 and 2009, close to the potential rate, with a diminished contribution from net exports. Employment should continue rising, although unemployment may not fall much further. Inflation is projected to rise modestly, reflecting past oil price rises and a high level of capacity utilisation. The government budget surplus will decline.

Should economic growth remain solid in 2008, as projected, a further quarter point increase in policy interest rates is likely to be necessary. Comprehensive removal of remaining non-tariff trade barriers vis à vis the EU would stimulate competition and trade, raising supply capacity, as would further measures to facilitate market entry in network industries.

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