addition, the heavy weighting of the construction sector in the economy is a concern. this risk was highlighted last year in our financial stability report, which looked at the implications of a sudden correction in the construction sector. • as i already pointed out, the economy has lost competitiveness in recent years. given the already high price level in ireland and the rising cost base, every effort should be made to avoid a further erosion of competitiveness. an important element in this is to ensure that our productivity performance improves so as to avoid further losses. on the external side, the volatility in energy markets and the possibility of sharp changes in exchange rates arising from global imbalances continue to be the main risks facing the economy. ireland ’ s dependence on oil remains higher than most developed countries, thereby raising our exposure to movements in oil prices. similarly, with 60 per cent of irish exports going to countries outside of the euro area, the economy is more vulnerable to sharp movements in exchange rates than other euro area members. monetary policy and the euro area economy turning to the international background for the irish economy, developments have been broadly favourable. the global economy continued its robust expansion in 2005, withstanding most of the dampening influence of higher oil prices, and is projected to grow at a broadly similar pace in 2006. closer to home, the euro area recovery has gained momentum, with growth becoming more broadly based and sustained in the first - half of this year. while external trade continues to provide significant impetus to euro area growth, there are now also signs of an improvement in domestic demand. business confidence has strengthened significantly and we have seen a welcome recovery in investment. however, progress remains slow in relation to consumer spending, though there are some signs of improvement. forecasts and projections point to an improved euro area growth outlook for this year and next compared with the past two years, with economic growth of around 2 per cent projected for both 2006 and 2007. turning to euro area price developments, the headline rate of inflation has been above two per cent since the start of the year and is expected to remain above that level into 2007. risks to outlook for price developments remain on the upside and relate to the potential for further increases in oil prices, stronger pass - through into consumer prices than expected or further increases in administered prices or indirect taxes. in addition, risks to the medium to longer - term outlook are also being signalled by strong growth in the money supply. in the light of the various risks to the outlook

john hurley : economic developments in ireland and other issues opening statement by mr john hurley, governor of the central bank and financial services authority of ireland, at the presentation of the annual report 2005, dublin, 12 july 2006. * * * you are all very welcome to this press briefing to mark the publication of the central bank ’ s annual report for 2005. the annual report describes in detail our activities in 2005, which proved to be another busy year for the central bank, both in terms of our domestic and our euro area responsibilities. i should also mention at the outset that the financial regulator will publish its own annual report later this month, which will detail its activities over the past year, while the central bank will publish our annual financial stability report in the autumn. economic developments let me start by briefly reviewing the main developments in the irish economy over the past year or so. the economy performed well in 2005 with gnp growth of 5. 4 per cent. this was a notable increase on 2004, when the figure was 4 per cent. gdp grew by 4. 7 per cent last year. i understand that the cso will release new national accounts figures tomorrow, which may include revisions to figures for 2005. the strength of the economy was evidenced by another robust performance in the labour market, with an additional 87, 200 persons at work and with the unemployment rate averaging 4. 3 per cent. this labour market performance, coupled with relatively stable economic growth rates over the last few years of about 4½ to 5 per cent, indicates that the economy is operating at capacity. the budgetary position has been very sound with general government surpluses each year since 2002, in which year a small deficit was recorded. growth last year was driven by domestic demand, principally by consumption and investment expenditure. the construction sector continued to grow at a very strong rate, with average employment growth of more than 14 per cent. this sector now accounts for approximately 13 per cent of total employment, an exceptionally high ratio by international and historical standards. the strong performance in this sector has been driven primarily by residential house building, with 2005 again characterised by a record number of new house completions. in addition, the home improvements sector also grew strongly. there was also quite marked growth in personal consumption expenditure last year, with a volume increase of 5. 6 per cent, which was the fastest rate of growth since 2000. this was a reflection of the strong employment gains experienced in the economy, rising disposable incomes and relatively favourable financing