states, can be seen in us studies. 4 another possibility to improve the accounting is to look more closely at the link between labour and capital. so far the analysis has been based on the two resources in production being dealt with separately. but there are good examples of when labour and capital are interdependent. technical knowledge becomes particularly valuable with regard to the development of programs and systems, the production of computer games, etc. artists, film stars, elite athletes / sportsmen and others active in the experience industry get more out of their special skills through the developments in it and communications. the us central bank governor ben bernanke uses the company walmart as another example. 5 for the purpose of using the it investments the company had made, they reorganised their work, gave the staff further training and changed the relationship to their suppliers. this type of technique for general use, of which it can be said to be an example, can in turn push up other investment, such as further education. there are also other ways of developing the analysis. for instance, there are studies based on general equilibrium models indicating that the contribution of capital to productivity growth is forsling & lindstrom see, for example, stiroh ( 2001 ) and jorgenson et al ( 2006 ). bernanke underestimated in growth accounting. 6 if we avoid such underestimations the residual item declines. our knowledge has increased. and it is important for us at the riksbank to increase our knowledge of the development of productivity and of what might explain it. one of the current projects at the riksbank aims to obtain greater knowledge of how it investment, reorganisation and further education together affect productivity. better statistics lead to better analysis i would like to conclude this section with a few words on the considerable significance of economic statistics for being able to analyse productivity and the driving factors behind it. the previous us central bank governor, alan greenspan, was famous for his ability to take in large volumes of statistics. he became legendary when in the mid - 1990s he was the first to predict that productivity growth in the united states would strengthen as a result of increased use of it. this led to the central bank being able to conduct a more expansionary monetary policy for a period, without inflation rising. a few years ago i carried out an examination of economic statistics. my conclusions then were that these needed to be improved in four areas. all of them had in common that they were important to

##s into the country. a further challenge from the global front is the elevated price of oil and other non - oil commodities. several market analysts share the belief that inflation this year would be higher than in 2007, primarily because of volatilities in global commodity prices due to supply constraints. impact on the philippine economy the unraveling of the impact of subprime on financial markets, the growing prospect for a slowdown in the us and other major economies, the uncertainty of how monetary authorities will react to arrest the economic slowdown, volatilities in oil and commodity prices. these are just a few of the potential challenges that could determine the complexion of macroeconomic policies in the philippines this year. the manner by which we will calibrate our response to these challenges will define how much the economy will grow, how much we will be able to limit inflation and up to what extent we can maintain the stability of our financial markets. are we up to these tasks? i certainly believe we are. for two reasons. first, while the challenges appear staggering and mainly beyond our control, the philippines is in the best macroeconomic shape it has been in two decades as a result of the significant structural and policy reforms undertaken over the recent years, making it more resilient in the face of global challenges. inflation has been on a trend decline, with average headline inflation for the first 11 months of 2007 at 2. 7 %, way below last year ’ s 6. 2 % as well as the target of 4 - 5 %. the external position is in substantial surplus of around $ 8. 5 billion, more than double last year ’ s level, due mainly from the continued strength of the current account. the gir, at an all - time high of $ 32. 7 billion, remains adequate and within internationally accepted benchmarks. the peso, supported by the strong external position, has been one of the top performing asian currencies. the banking sector in the meantime continues to improve as evidenced by near pre - crisis npl and npa ratios, double - digit growth in assets and profitability, and capital adequacies way above the international standards, even after we implemented basel ii in july last year. economic outlook is the recent performance a short - term phenomenon? is the country ’ s reduced vulnerability a passing episode? i don ’ t believe so. our model on the philippine business cycle shows that the downward phase of the country ’ s business cycle reached its