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.