every two francs is earned abroad " is the phrase that comes to mind when the performance of our exporters is being discussed. this also means, however, that one out of every two francs is still earned in switzerland. put another way, the domestic economy plays a crucial role in our country's economic development both on a demand and production level. in 2004, domestic turnover grew more slowly than sales abroad. the growth figure of 1. 8 %, however, was still higher than in the previous year. household consumption played a central role in this respect : this began to recover towards the end of 2003 in the wake of the general economic upturn and the rise in earnings. a good showing by the construction sector also contributed to higher demand for household equipment. in contrast to their counterparts in germany, swiss consumers remained relatively optimistic in 2004, and this helped to sustain the level of business activity. where public - sector demand is concerned, the financial constraints imposed by the confederation and cantons put a brake on the growth in spending in 2004. for the first time in several years, public - sector demand rose less quickly than the other components of domestic demand. in this initial phase in the economic cycle, the return of confidence would normally have triggered growth in investments aimed at adapting the means of production to future needs. but such an upsurge has so far been largely absent, both in switzerland and in other european countries. although the profitability of companies has improved, they have given priority to raising the utilisation of existing capacity rather than expansion or modernisation, as the latter are considered to entail substantially more risks. as a result, growth in capital spending was modest in 2004. this cautious approach by companies also affected the development of the labour market : contrary to expectations, unemployment fell only slightly in the past year. this can be ascribed, on the one hand, to weak growth and large productivity gains and, on the other, to a lack of confidence in the soundness of the recovery. monetary situation starts to normalise thus, 2004 saw the economic situation starting to return to normal. our aim was therefore to modify our policies so as to gradually bring the monetary framework into line with the new environment. a normalisation of the monetary situation should go hand in hand with an economic normalisation in order to ensure that price stability is maintained in the medium term. we waited until june – when the signs of a recovery became manifest – for an initial quarter - point rise in the target range for

of an industrialised country is faced with a similar situation. all of these banks deliver their profits to the state, and the snb is no exception. our main argument against the cosa initiative, however, is that it rests on an illusion – namely, that a central bank is able to transfer profits of over chf 1 billion every year. once this illusion has been dispelled, it will become clear that the initiative makes no sense, as nothing would remain for the state pension scheme. and, as we have often stated in the past, the current disposable profit of chf 2. 5 billion swiss cannot be sustained. as the president of the bank council pointed out just now, our annual disposable profit averages about chf 1 billion. as this year's negative result shows, it is subject to sharp fluctuations. the fact that we are now distributing more than this amount is because we are gradually releasing the provision for future profit distributions. this provision amounted to chf 13. 4 billion in 2001, but had dropped to chf 6. 9 billion by the close of our 2004 accounts. this development does not come as a complete surprise. a progressive fall in the provision had been predicted, though the speed of the decline – a result of the current low interest rates – had not been expected. our profit distribution may already have to be reduced in 2007, when the agreement we concluded in 2002 with the federal department of finance on the distribution of profits is revised. our profit distributions will gradually decrease towards the chf 1 billion level. ladies and gentlemen, dear shareholders, dear guests, 2004 was a relatively favourable year for the swiss economy. a few clouds have recently appeared on the horizon. the recovery has unfortunately weakened, so a fall in unemployment is not imminent. we will continue to pursue a monetary policy aimed at maintaining the level of economic activity, though we will keep a careful watch on the general level of prices. with prices remaining stable, interest rates low and a good level of competitiveness, our economy is well equipped to resume a brisker growth trajectory in line with the global economy. as in the past, however, the international environment remains fraught with uncertainty at both the economic and monetary level. the independent course steered by the national bank has made it possible to create a monetary framework conducive to the development of our economy. this success hinges not only on the correct interest rate decisions, but also on the credibility conferred upon us by our