The recovery, which began in the second half of 2003, seems more robust in Switzerland than in the euro area. With the strengthening of the external environment, the upturn is likely to continue, with output expanding by 1¾ per cent in 2004 and 2¼ per cent in 2005, which is above potential growth. This firming in activity should be accompanied by a gradual decline in unemployment  without generating inflationary pressures. In the absence of price pressures, the authorities should maintain easy monetary conditions for some time until the recovery is firmly established, even if some tightening will eventually be necessary. The fiscal tightening as from 2005 is warranted to consolidate the public finances. In the medium term, the main challenge is to strengthen potential growth and productivity which, first and foremost, requires ambitious reforms in the product markets...