example, the government had a surplus of 0. 2 per cent of gdp. the stock of debt is one of the lowest in the eu — 33 per cent of gdp — down by two thirds on its level twenty years earlier. in the structural area, ireland has made relatively good progress in implementing labour and product market reforms aimed at improving competition and flexibility. this has played an important role in mitigating the economic fall - out from asymmetric shocks in a monetary union. ireland ’ s relatively good record in these areas is borne out by the eu commission ’ s recent review of countries ’ performance in implementing the eu ’ s broad economic policy guidelines. the current outlook as i have indicated, the global slowdown and, more specifically for ireland, the negative shock to the information and communications technology sector in 2001, has resulted in a significant slowdown in economic growth from what was clearly an unsustainable pace over the long run. for the current year, the bank expects growth of a little over 3 per cent of gnp, as the pace of the international recovery picks up. the recent sharp fall in inflation to about 2 per cent is a welcome development as price levels in ireland compare somewhat unfavourably with the rest of europe, due to several years of relatively high inflation rates. in terms of current challenges and prospects, the rapidity of the real convergence process has placed significant strains on domestic infrastructure, which requires further sustained investment. in the convergence period and the run up to emu, ireland benefited significantly from eu structural and cohesion funds, which provided a significant boost to domestic infrastructure projects. as our economy improved these transfers have decreased over time. the national development plan 2000 2006 outlined a substantial programme for improving and expanding domestic infrastructure, amounting to over €51 billion over the life cycle of the proposals. investment in the capital stock, including infrastructure, in education and training and in research and development must continue if future growth potential is to be realised. a second area of concern has been the large and persistent increase in the price of housing over the last decade. new house prices have increased by 183 per cent between 1995 and 2003, an average increase of nearly 14 per cent a year, while existing house prices have increased more rapidly still. this has been accompanied by continued strong increases in residential mortgage lending in the 20 to 25 per cent range for a number of years. demand for housing has undoubtedly increased significantly in recent years due to strong fundamental factors such as income and employment growth

tested the banking sector. these exercises involve measuring the financial health of the sector in difficult economic circumstances, and the results indicate that the sector has the capacity to weather a significant slowdown. notwithstanding the robust health of the sector, the issues which i have outlined earlier pose challenges for the sector. international banks have been negatively affected by recent events, both directly through losses on their us subprime assets and through a variety of other indirect channels. however, irish banks have not had to absorb similar losses because the domestic banks have no significant direct exposures to us subprime mortgages and very limited exposures through investments and credit lines extended to other financial companies or special purpose vehicles. the banks ’ provisional year - end results confirm that losses arising from the us subprime issue are relatively small. in light of the scale of the disruption in international financial markets, it was inevitable that the domestic banking sector would find it more challenging to raise funds on a term basis. however, irish banks ’ liquidity arrangements are good and the sector is comfortably satisfying the more robust prudential liquidity requirements put in place by the financial regulator prior to recent events. in addition, irish banks are well positioned to access central bank funding, both because of the broad range of collateral acceptable in the eurosystem for obtaining these funds and the significant volume of this high - quality collateral available to them. lessons – the way forward before concluding, i should say that the financial authorities and governments in many countries are assessing how to turn the corner on the recent period both from a short - term and medium - term perspective. at an eu level, ecofin has set out a roadmap for dealing with such episodes of turbulence, while the financial stability forum, which brings together national authorities, international financial institutions, financial regulators and central bankers, has reviewed the lessons from a global perspective and presented them at the g7 last weekend. in the short term, all international commentators agree on the fundamental importance of restoring confidence in the creditworthiness and financial health of banks. the prompt disclosure by relevant banks of their exposures and associated losses would seem to be crucial in this respect. in the medium term, the financial stability forum ( fsf ) has identified a number of broad policy areas where further action is required to increase the resilience of the global financial system. these relate to enhanced transparency about banks ’ exposures to structured products and off - balance sheet vehicles, improving the valuation of assets when markets are illiquid,