stance this year will provide some support to domestic activity. it will partly offset the slowing of domestic demand, albeit within the limits of prudence and without an excessive deterioration in the underlying budgetary position. it will be particularly important to reduce the rate of increase in current spending to what can be financed by more moderate revenue growth, while continuing to focus public capital resources on improving the country's infrastructure, in line with the national development plan. as regards domestic demand this year, the most notable adjustment relates to the construction sector. its weight in overall output growth is set to decline to a more sustainable level due to a sizable reduction in residential construction output. this had reached levels in recent years that were well beyond the economy's medium - term requirements. the moderation in output growth and, in particular, the adjustment in the labour - intensive construction sector suggest that employment growth is set to decelerate significantly this year. while employment gains in other sectors of the economy are likely to more than offset the decline in construction sector employment, the overall increase in employment is likely to be quite modest. employment growth seems set to fall short of the increase in labour supply and, as a consequence, some limited rise in the unemployment rate, perhaps to an average of about 5½ per cent, is in prospect this year. less robust output and employment growth will, however, contribute to an easing in inflationary pressures in the domestic economy. the average hicp inflation rate is expected to fall to around 2½ per cent this year, and perhaps further to about 2 per cent next year, bringing inflation in ireland broadly into line with the euro area average. following substantial price increases over an extended time - period, house prices have declined reflecting an easing of demand. as prices have eased, housing output has also fallen back from recent record highs, adjusting to meet the new demand conditions. as a result, the supply of new houses is projected to decline to a level in line with the mediumterm requirements of the economy, or possibly even somewhat below it. this combination of housing output and price developments has resulted in a significant and welcome deceleration in credit growth since mid - 2006. turning to the medium - term, the economy has the potential to grow by around 4 per cent, a healthy rate of expansion by the standards of other developed economies. assuming no adverse external developments and a broad levelling off in housing output, growth should recover in 2009, approaching its medium - term potential. as i have already stated

john hurley : international economic and financial developments and prospects for the irish economy address by mr john hurley, governor of the central bank & financial services authority of ireland, to the irish association of pension funds annual dinner, dublin, 28 february 2008. * * * introduction i would like to thank your chairman for the invitation to address you this evening on the occasion of your annual dinner. in my speech tonight, i will comment on international economic and financial market developments as well as prospects for the domestic economy. i will also briefly address the issues of population ageing and pensions. international economic developments prior to the recent slowdown in economic growth, the global economy had, over the previous four years, experienced its strongest period of expansion since the early 1970s. while this might not have been apparent in the euro area, where growth only started to pick up in the second - half of 2005, the evidence from the rest of the global economy is clear. not only was there robust global growth during this period, a number of other features were also striking. in particular, increasingly global growth was spread more widely, with emerging market and developing economies accounting for a higher share of growth. an important factor behind these developments has been globalisation, which has had both a significant real and financial dimension. the economic impact of these developments has meant that the emerging market economies now account for a greater share of world economic activity. integration, however, works both ways. as a result, i would not expect that these economies can remain immune from the current slowdown in global economic activity. the main sources of this slowdown are rooted in the us economy and, in particular, its housing sector. the adjustment in that sector is having a significant effect on the us economy and also on other major economies. this reflects the fact that a range of complex financial products linked to housing, in particular in the area of sub - prime lending, has amplified the impact on the real economy of what were not large changes in themselves. this, in turn, reflects the way in which these products were distributed and valued within the financial system. the actual scale of the slowdown in the us remains rather uncertain. there has been a significant monetary and fiscal policy response, but it is still unclear how deep or how long the slowdown may be. it is apparent, however, that growth will slow substantially. the second area of uncertainty is the impact on other economies. given the weight of the us in the global economy and its extensive linkages with other economies