The still very low unemployment rate and the low interest rate environment should continue to shore up private consumption, while investment should benefit from increased public spending on infrastructure as well as new projects in education and health. Certain capital intensive sectors look set for further expansion. The continued strong growth in permits for residential dwellings should also lead to further growth in dwelling investment. It is also evident, however, that maintaining the momentum registered in recent years is becoming an increasingly challenging feat, as a number of internal constraints already identified last year persist. The rapid economic expansion and population growth have put pressure on the country’s physical infrastructure, in particular as regards road transport and health and education facilities. Given the adverse effects of infrastructure gaps on business investment, productivity and social welfare, it should not be surprising that one of the key recommendations which IMF staff issued in January was to boost public investment, to address infrastructure bottlenecks and support medium-term growth  Page | 4  in a budget-neutral manner. This need to boost investment in infrastructure was also acknowledged by the European Commission in its assessment of the Stability Programme and National Reform Programme. In this regard, the Government’s announcement of a seven-year capital investment programme focusing on the road network is an encouraging step forward. However, given that this additional investment coincides with a booming construction sector and more stringent procedures as regards the utilisation of EU funds, the possibility of slippages should not be overlooked.

Over the past year, developments in financial markets have been largely dominated by several political events, while generally positive economic news seemed to matter much less. These political events ranged from trade tensions, especially between the US and China, to Brexit-related developments, a slowdown in emerging market economies, most notably in Argentina and Turkey, and also the rise of populist movements in some European countries that have led to tensions, particularly between Italy and the European Commission. All this led to volatility in financial markets, with a constant turn in Risk-On /Risk-Off sentiment, which has made it more challenging for investment strategies. As a Central Bank, financial market developments are of a direct interest to us as these have an impact on both the domestic banking system and the Central Bank itself. While such volatility in financial markets and persistence of interest rates at a relatively low level in Europe have continued to exert pressure on interest income flows and potential on capital gains, and hence impinge on profitability, nevertheless domestic banks have absorbed such turbulence relatively well. For the  Page | 3  year ahead, the situation is likely to remain equally challenging on interest income and profitability, as signs are emerging that world economic growth, including in Europe, is losing momentum. This could be also particularly challenging for the process of the normalization of the monetary policy stance in Europe, which is likely to be very gradual.