This statement provides information that has become available since the issuance of the staff report on January 12, 2017. The thrust of the staff appraisal remains unchanged.
1. CPI inflation accelerated in December, and real GDP growth in 2016 may have been slightly higher than projected. The marked rise in inflation in December to 1.6 percent (year-over-year), from 0.7 percent in November, reflects mostly higher energy prices. Core inflation edged up to 1.0 percent in December, 0.2 percentage points higher than in November. As a result, the average inflation outturn for 2016 was slightly higher (-0.2 percent) than previously estimated. Base effects, along with possible further oil price rises, create upside risks to the 2017 inflation projection. High frequency indicators for December, including a stronger manufacturing PMI and continued solid employment growth, also point to sustained strong economic activity that could have put 2016 annual real GDP growth slightly beyond the estimated 3.2 percent.
2. The government is launching several policy initiatives. Following the European Court of Justice ruling that nullified abusive variable-interest mortgage contracts with floor clauses, the government has issued a decree to establish a mediation mechanism that would facilitate the settlement between banks and borrowers, reducing the burden of the court system that needs to rule whether individual mortgage contracts are abusive. The government has also announced its intention to task the fiscal council (AIReF) with conducting an expenditure review. Moreover, the central government and most regional governments agreed to seek reforms for the regional financing system, with an expert commission to be formed in one month.