The economy has been hit severely by the international financial crisis through its exposure to financial services and trade. The number of people on active labour market programmes has risen. However, the fall in output has been partially absorbed by an increase in the number of workers on reduced work time, from near zero before the crisis to 2.8% of the labour force in August. There are signs that activity has bottomed out, however, thanks to stronger equity markets and policy support. Further ahead, gradual recovery will be sustained by improving financial conditions and growth in world trade.

The international crisis hit the economy towards the end of 2008. Initially, the financial sector was affected, but the collapse in world trade also hurt the export-dependent manufacturing sector, and GDP is set to contract during 2009.

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The international financial crisis is sharply reducing economic growth, initially in the financial sector, but subsequently in broader domestic demand. These effects should persist into 2010. Consequently, unemployment will rise further, while core inflation will fall slowly.

Growth was well above that in other European economies in 2007. Largely unaffected by the turmoil on international markets due to its strong position in the mutual funds sector, financial services continued to be the main driver of economic growth. Strong private investment and manufacturing exports also contributed to the expansion. The improved employment prospects spread from cross-border workers to residents, enabling a gradual reduction in the unemployment rate. Despite a loss in price competitiveness, the recovery is set to weaken only moderately and growth is likely to remain above potential growth through to 2009.