the slowdown in house prices, the main concern now is both the rapid growth and high level of indebtedness in the economy. total private sector credit is growing at an annual rate of about 25 per cent. there is no longer any doubt that the private sector is highly indebted by international standards and this level will very soon match the levels recorded in europe ’ s most indebted economies. the ratio of debt to disposable income of the household sector is now in excess of 120 per cent and is growing very strongly. regarding the mortgage component of private sector credit, it can be expected that the slowdown in house price increases and, in time, a reduction in housing volume to more sustainable levels should also lead to a slowdown in mortgage credit growth. however, we will remain concerned until we see some evidence of such a slowdown. the point of most concern about the high and growing level of indebtedness is that it is occurring at a time of historically low interest rates so that any significant increase in rates or downturn in economic activity in the future would cause problems, particularly for recent and more highly indebted borrowers. looking further ahead, most indicators would point to the irish economy continuing to grow strongly at a rate of about 5 per cent over the next few years. as a very open economy, the performance of ireland is significantly dependent on the global economy, the prospects for which are broadly favourable. there are downside risks to these forecasts. internationally we have seen a sharp increase in oil prices and uncertainties remain in this regard. as i said earlier, unfavourable moves in exchange rates could also impact on growth. domestically, there are also some risks, the main ones being the high and growing level of indebtedness, threats to competitiveness and the expanded construction sector. turning briefly to fiscal policy, it should be framed in a way that provides a capacity to cope in the event of the downside risks to the economy materialising. such an approach would also help avoid overheating pressures in an economy that is growing at more or less full capacity. monetary policy and the euro area economy focusing on the euro area, the expectation is that growth will moderate this year from the increase recorded in 2004, which itself marked a recovery from successive years of extremely weak growth. however, the 2 per cent recorded last year masked a sharp slowdown over the course of the year. moreover, the increase of 0. 5 per

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 2004, dublin, 12 july 2005. * * * you are all very welcome to this press briefing to mark the publication of the central bank ’ s annual report for 2004. the annual report gives a detailed account of our activities in 2004. it again proved to be a very busy period for us, with major developments at both domestic and european levels. the re - structuring of the central bank that took place in 2003 was firmly bedded down last year. as you know, the creation of the financial regulator as a distinct component of the central bank and financial services authority of ireland was a major development that has led to significant change throughout our organisation. i am happy to report that these new arrangements are working very well. the financial regulator will be publishing its own annual report next week, which will give details of its very busy agenda of the past year or so. while the central bank has overall responsibility for financial stability, the financial regulator is, in addition to its very significant consumer mandate, responsible for the prudential supervision of individual financial institutions. the greatest interaction between the two sides of the organisation is in the area of financial stability. we have in place a joint committee, the financial stability committee, as a very important element in this cooperation. the central bank will be publishing the financial stability report in october. as was the case last year, it will focus in particular on risks to financial stability. as is usual, the annual report today contains detail on our extensive eurosystem responsibilities, including those in the areas of monetary policy, payments, financial markets and currency. economic developments i would now like to turn to the general economic situation. the irish economy is continuing to perform well with gnp growth of 5½ per cent in 2004 ( gdp, 4. 9 per cent ). this underlying strength is reflected in the labour market with unemployment at around 4½ per cent in 2004, falling to just over 4 per cent in the first quarter of this year. total employment grew by almost 4 per cent in the same period. this was the fastest rate of growth since the end of 2000, with the construction and related sectors accounting for almost half of this increase. this reflects the fact that the construction sector here is large in relation to other euro area countries, accounting for about 12 per cent of employment compared to about