##ability ( the ratio of current profits to sales ) of nonmanufacturing firms has been on an increasing trend over the past few years ( chart 10 ). coupled with the latest increase in profitability of manufacturing firms, the profitability of firms as a whole has been contributing to efforts to improve productivity and strengthen the growth potential of japan ’ s economy as well as to improve people ’ s outlook for their permanent income. concurrently, further accommodative financial conditions – such as lower long - term interest rates, higher stock prices, and the yen ’ s depreciation – have strongly supported these efforts. the annual growth rate of bank lending turned positive at the end of 2011, and has been rising steadily since then. 3. changing employment and income situation heightened activity in the nonmanufacturing sector has altered the employment and income situation. the labor demand of nonmanufacturing firms has been increasing as a trend, and a labor shortage is particularly evident at small firms ( chart 11 ). firms have started to raise wages for part - time workers and to allow for a shift in employment from non - regular employment to regular employment. in addition, the outcome of the spring wage negotiations bis central bankers ’ speeches suggests, in not just a few cases, possible increases in monthly wages and bonus payments as well as other lump - sum payments. firms also face challenges in promoting new participation in the labor force, which has led to a rise in the employment rate of female spouses and the labor force participation rate of women ( charts 12 and 13 ). an increase in part - time and low - paid workers could result in a decline in wages per worker. it should be noted, however, that this trend partly reflects workers ’ own preferences about management of their household chores and child rearing. if people who previously had concentrated on household chores and child rearing join the labor force, they will increase the economy ’ s supply capacity, bringing additional income to households. sustained improvement in the employment situation for non - regular employees is expected to spill over to regular employment and contribute to its stabilization. 4. sustainability of economic recovery driven by consumption let me summarize what i have discussed thus far. first, from the supply side of the economy, firms – mainly in nonmanufacturing – have progressed with new measures to find potential consumer demand, creating higher value - added and increasing business fixed investment. this has supported the foundation of profitability and productivity improvement, thereby strengthening the

the eurosystem for shaping monetary policy in the best interest of 320 million people in fifteen countries. this is a task which my colleagues at the bank and i approach with confidence and enthusiasm. from a national perspective, the challenge now is to maximize the benefits of participation in monetary union by making further progress on the path of reform. three conditions in particular need to be met : fiscal policy must remain supportive of macroeconomic stability ; wage increases must be justified by productivity gains ; and our product and labour markets must become more flexible and competitive. the new phase in malta ’ s economic history which was ushered in on 1 january, therefore, promises to be a challenging one, but it should also be an exciting time. for a country with a population of 400, 000, having a major reserve unit as its domestic currency is indeed a significant advantage. we thus have good reason to feel reassured now that we are about to reinforce our integration in europe with full economic and monetary union. for, while the eu has for fifty years brought peace and stability to the peoples of europe, the single market and emu have created a congenial environment in which economies can grow and people prosper. on another, but no less important level, the euro is also a symbol of a common identity and of shared values and, therefore, a potential instrument for bringing peoples closer together.