john hurley : recent economic developments in ireland and the outlook for the economy opening statement by mr john hurley, governor of the central bank and financial services authority of ireland, at the presentation of the annual report 2006, dublin, 11 july 2007. * * * you are all very welcome to this press briefing to mark the publication of the annual report of the central bank and financial services authority of ireland. i will briefly introduce my colleagues who join me today. liam barron, our director general, deputy director general brian halpin, director general designate, tony grimes, and maurice mcguire, head of economic analysis and research. as you know, liam barron is retiring as director general next month. at the outset today i would like to thank liam for his outstanding contribution to this organisation over a long and distinguished career, in particular as director general and as a member of the board. i would also like to take this opportunity to wish tony grimes all the very best in his new role. tony is well placed to bring this organisation forward and to meet the various challenges in the years ahead. the annual report describes in detail our activities in 2006, which proved to be another busy year for the bank, both in terms of our domestic and our euro area responsibilities. today we are also publishing our strategic plan for the coming three years. i should also mention that the annual financial stability report will be published in the autumn and that the financial regulator will publish its own annual report later this month. economic developments i will begin by reviewing economic developments in ireland over the past year or so, before moving on to discuss the outlook for the economy for this year and next. the latest cso national accounts data, which were released after the annual report was finalised, indicate that the economy performed very well last year with gnp growth of 6. 5 per cent and gdp growth of 5. 7 per cent. reflecting the strength of output growth, last year was another good year for employment. an expansion of almost 4½ per cent in the numbers employed brought total employment above the 2 million mark for the first time. the unemployment rate remained low, below 4½ per cent – essentially full employment conditions. the pace of expansion last year was, in fact, somewhat above the economy ’ s medium term potential and, partly as a result, there was an increase in inflation. the harmonised index of consumer prices, which is the most appropriate measure, rose by 2. 7 per cent compared with 2. 2 per cent the previous year.

housing output and more moderate consumer spending. the growth rate is still expected to be strong by international standards, however, as i have indicated, there are some risks to the outlook that have to be considered in framing policy. international and euro area economy turning to the international background for the irish economy, developments have remained broadly favourable. the global economy expanded rapidly in 2006, and while some moderation is projected this year, global activity is expected to continue to grow strongly. economic growth in the euro area increased by 2. 7 per cent in 2006, its fastest pace in six years, and activity has remained robust in the first half of this year. growth has become increasingly broad based, with the strength of fixed investment spending particularly impressive. the conditions are in place for sustained growth over the medium - term, with domestic demand remaining strong and global growth continuing to provide support for euro area exports. but downside risks that i have already referred to, relating to potential volatility in the oil market and the possibility of a disorderly adjustment of global imbalances, are also relevant. with regard to euro area price developments, the headline rate of inflation has stabilised at just under 2 per cent in recent months, but is expected to increase somewhat in the final quarter of the year. looking past this short - term volatility and focusing on the policy relevant medium - term horizon, risks to the outlook for price stability remain on the upside. against the backdrop of high capacity utilisation and the rapidly improving labour market, there is the potential for supply side pressures to emerge, and there is also the risk of further unexpected increases in oil prices. in order to ensure that these risks to price stability do not materialise over the medium term, and that inflationary expectations are kept firmly anchored, the governing council will continue to monitor closely all developments. as you know the governing council never pre - commits to a specific course of action. activities and financial accounts the annual report gives a full and detailed account of the bank ’ s activities. i will just refer here to our financial accounts. the bank ’ s profits for 2006 amounted to €110. 2 million. after transfers to reserves and adjustments related to the recognition of the bank ’ s pension liability as required under frs 17, the bank ’ s surplus income amounted to €98. 5 million, which accrues to the exchequer. in addition, a total of €39. 5 million, in respect of the net proceeds of coin issued,