us, this greater pressure of imported costs would be added to the scarce gaps that the economy already presents, which could lead to greater current - account imbalances, higher inflation and additional pressures to speed up the pace of monetary normalization. special attention deserves the effects on financial markets and asset prices, especially in circumstances where the fed continues to progress in normalizing its monetary policy. the uncertainty associated with the trade conflict contributes to reducing risk appetite, making capital flow out of emerging economies. so far, this adjustment has been selective and major effects have materialized in only a few vulnerable economies. for an economy with good fundamentals, such as chile, one possible risk comes from a synchronized adjustment of emerging economies ’ asset prices, as it happened in the late 1990s or during the global financial crisis. a scenario of greater uncertainty, tight financial conditions and an appreciated dollar is particularly negative for the prices of commodities, especially copper. fears about the effects of the trade war have been heightened by the further moderation of china ’ s economic activity figures. the chinese authorities again intensified fiscal and monetary stimuli, reversing some of the measures adopted during 2017 to limit indebtedness and promote more balanced growth. about the monetary stance, its central bank has led interest rates downward and granted liquidity to the banking market by cutting reserve requirements twice during 2018. in turn, it has allowed the currency to depreciate — close to 10 % since march — without major interventions, partially offsetting the higher tariffs on chinese goods. at the fiscal level, they have relaxed the limits of indebtedness of local governments, allowing them to issue debt at lower interest rates and eliminating restrictions on public - private partnerships with the aim of stimulating investment in infrastructure. tax reductions have also been applied to companies and households for an amount of roughly 1. 3 % of gdp and the easing of environmental constraints, which already resulted in a rebound in industrial production during the first quarter. how much room do the chinese authorities have to further stimulate demand? one doubt refers to their level of indebtedness, which is three times their gdp, too high for an emerging economy, and originated in a poorly regulated segment of the financial industry. the same is true of their fiscal side, with a deficit that is high and would grow more if local governments were included. finally, in a currency scheme that is still relatively rigid, expectations of a greater depreciation of the currency could trigger capital outflows, which in the past have

equity, and discounted debt buybacks. still, it is pretty clear that the government will be acquiring additional equity stakes. while i ’ m not yet in a position to put a number on it, i can say that the overall net cost to the state of recapitalisation will be manageable. indeed, the recapitalisation will ensure that the banks are clearly seen as strong, financially self - reliant entities able to fund themselves in the market into the future. by the same token, the overhang of the banking situation on the state ’ s finances will be removed. these transactions are thus a key ingredient in moving both the banking and the budgetary situation forward. as the market digests and acknowledges these new realities, we can expect a further tightening of borrowing spreads. this may all seem a little removed from your immediate preoccupation, which is the job market. but i think you will agree that an overall economic pick - up in ireland offers the best route to improved job prospects here for yourselves, and that pick - up will depend on a speedy resolution of the budgetary and banking problems. those of you who have the ambition and capacity to start on a career of entrepreneurship have an even more direct interest in ensuring that the banks are functioning providers of credit. i think it ’ s fair to say – and what data we have seems to bear this out – that banks in ireland have reacted to their own difficulties and to the downturn by greatly reducing their risk appetite. some of this was a necessary adjustment, but the result has been limited availability of credit for start - up firms and smes. indeed, i have the impression that, during the years of property - based lending, the banks have lost their edge in small business lending. this is something that they need to pay more attention to, not just for the sake of the economy, but for their own business performance in the years ahead when property - based lending will be on a much more limited scale. a number of new initiatives have been floated in this regard. it is important that the banks get going now on improving their techniques for making sound small business loans. at the aggregate level, the pace of economic activity and the trend in unemployment still remain weak. the decline in aggregate income is bottoming out, but ( in the second quarter of 2010 ) at a level perhaps 16 per cent lower than at the peak. ( that ’ s gnp : economic activity, measured by gdp it is about