for the labour market turned out to be a bit better than we expected. the average unemployment rate in the first half of 1997 was 8¾ per cent. when we met in november, the most recent figure we had was 8. 6 per cent. the run of numbers we have received over the past few months have been either 8. 2 per cent or 8. 1 per cent. so if you look across the past 12 months, i think you could see a reduction in the unemployment rate of ½ per cent or so. so over the course of 1997 a combination of good growth and moderate outcomes on wages made some inroads into our unemployment rate. on inflation, i have little to add to what i said last time. underlying inflation has been 1½ per cent over the past 12 months. we are still expecting that it will rise over the next 12 months, largely because falling import prices, which were pushing inflation down, have given way to increasing import prices. in fact, the fall in the exchange rate has meant that wholesale import prices have risen by 7. 7 per cent over the past 12 months, and import prices made their first positive contribution at the retail level to the cpi in the march quarter after seven quarters when they detracted from it. these changes are not alarming, but they do tend to suggest that we have passed the low point in the inflation cycle. so i feel reasonably comfortable with our earlier assessment, except in one respect last time we met, the full extent of the asian slowdown was still uncertain. in fact, it is quite interesting that as recently as six months ago, most discussions treated the asean four as being the known extent of the asian slowdown. we did not know at that stage, although the possibility was flagged, that korea would join them, that indonesia would deteriorate significantly further, and that japan would suffer a relapse into recession. when we take these developments into account, it is clear that a bigger external contractionary effect now has to be factored in. i will return to this subject in more detail later. 3. prospects for 1998 ( a ) general so much for 1997 - what about 1998? in the absence of the external shock from asia, 1998 was shaping up to be, if anything, a stronger year than 1997. there was nothing in the internal dynamic of the economy which was pointing to a slowdown, and we had every reason to expect growth of 4 per cent plus. that will no longer

pointing to an economic slowdown either. in the case of the emerging market economies there are two divergent developments. in some countries, growth is still robust, but not quite as strong as a few years ago. china, for instance, grew at an annual rate of 6. 9 % in 2015 and is expected to continue to grow by an annual average of around 6 % up until 2020. china is, therefore, a long way off the doubledigit growth figures that it had recorded in the past. this, however, is not unusual, as, typically, the catching - up process slows down as per capita income rises. the situation is different in those countries which are heavily dependent on commodity exports. these countries are suffering from the still very low oil prices – some of these countries are on the verge of or in the midst of a recession. last year, economic output in bis central bankers ’ speeches russia declined by 3. 7 %, for example, and by 3. 8 % in brazil. in many of these countries, the boom in commodity prices, which continued up until 2012, masked the structural weaknesses in the economies concerned, which are now all the more apparent. looking at the big picture, the imf has revised its economic forecast for april down slightly. imf economists are now expecting the global economy to grow by 3. 2 % this year, and to accelerate slightly to 3. 5 % next year. what does this mean for the euro area? compared with other regions, the euro - area economy is likely to have made a pretty good start to the new year. according to eurostat ’ s flash estimate, the pace of growth in the first quarter stood at + 0. 6 %, compared with + 0. 3 % in the final quarter of 2015. eurostat did, however, present its first flash estimate just 30 days after the end of the quarter, and not after 45 days as has been the case in the past. thus, the new flash estimate is de facto based on “ hard ” data taken from just two months of the first quarter, making it more prone to revision than the previous estimate. and unlike many other “ hard ” indicators, the sentiment indicators are not showing a pick - up in the pace of growth. owing to the weaker developments in other parts of the world, growth in the euro area was driven primarily by domestic demand of late, and less so by exports. the improved situation on the labour market is likely to have contributed