The growth-inflation dynamics changed markedly after the January 2010 policy review. Economic recovery was taking firm hold as evidenced by expanding exports, improvement in industrial production and sustained increase in financing from banks and 6  BIS Review 111/2010  non-banks. On the other hand, there were distinct signs of the inflation process getting more generalized.
Recreating fiscal space by raising potential output through reforms and public investment, and respecting the European fiscal framework will maintain investor confidence in countries with high public debt, low growth and low fiscal space. But as fiscal expansion in the other countries may have limited spillovers, national fiscal policies remain constrained.