By end-year, however, business sentiment was deteriorating sharply. Household confidence remained largely intact, although consumer spending appeared set to decelerate to a pace more closely in line with disposable income growth. Inflation benefited from lower import prices, while wage costs were contained by legally-backed pay ceilings. Moreover, by late 1998 shortages of skilled and semi-skilled labor were being reported in some sectors, ranging from information technology to transportation. Sharp local and regional variations in unemployment persist, reflecting the weak capacity of the labor and product markets to create new jobs and to provide incentives for mobility.
Some positive changes are underway in labor and product markets.
In product markets, the staffing of the competition authority has been increased, and the EU-driven telecommunications reform is in place. In real terms also, deflated by underlying inflation, long rates have fallen significantly. Real short-term rates, on most measures, have edged up. The real effective exchange rate has remained broadly stable in recent months. The fiscal deficit has declined well ahead of target .