turnaround in inflation. the consumer price index is forecast to fall by around 4 per cent this year and to be broadly flat next year ( the hicp index, which does not include mortgage interest payments, is projected to fall by close to 1½ per cent this year with a further modest fall in 2010 ). while major initiatives have been taken to stabilise the financial sector, and i will comment on these shortly, we also need to restore stability in other areas and chart a path that will in time ensure a sustainable recovery in economic growth. in particular, the importance of reversing the deterioration in cost competitiveness and in fiscal imbalances cannot be overstated. with regard to competitiveness in recent years, economy - wide productivity gains have been very modest and labour cost increases have been relatively high compared with our main trading partners. this has led to a substantial erosion of the country ’ s competitiveness. this deterioration is now being addressed and many firms have taken action to reduce their costs, with a view to regaining competitiveness and protecting output and employment. while this has undoubtedly been painful, it nevertheless reflects encouraging evidence of the flexibility and realism that is needed if the economy is to maintain the maximum possible number of jobs in the short term while placing ireland in a favourable position to benefit from an eventual recovery in world demand. this type of flexibility must embrace all sectors of the economy. on the fiscal side, the deterioration in the public finances is a cause for serious concern. the government has agreed with the european commission to correct our excessive deficit position by 2013 and it is crucial that these targets are met. the government ’ s introduction of a public sector pension levy and the supplementary budget are steps that have been taken to this end. bringing the public finances back into balance is necessary to restore macroeconomic stability and to ensure international confidence in the economy on which, as a small open economy, we are so dependent. as the bulk of the fiscal problem is of a structural or underlying nature, a cyclical recovery in economic growth cannot be relied on to restore order to the public finances. experience, both here and overseas, suggests that the best way to restore fiscal balance is to place more emphasis on reducing expenditure rather than increasing taxation. therefore, while some broadening of the tax base is necessary, it is desirable that the primary focus of fiscalconsolidation measures should be on reductions in public spending. the commission on taxation and the special group on public service numbers and expenditure programmes will help identify

deal or a disorderly outcome. 1 / 6 bis central bankers'speeches just a couple of weeks ago, the central bank published our revamped financial stability review3. even if you don ’ t get through the whole report, i recommend the first couple of pages at least. they highlight what we see as the key risks currently facing the irish economy and financial system. it also addresses how we can build resilience to these risks. a disorderly brexit is one of the main risks on the horizon. as the possibility of a no deal scenario looms ever larger, the uncertainty around the final outcome is already weighing on business and consumer sentiment. within the central bank, we have been working on brexit since before the referendum4. the work has focused on a few main areas : first – understanding the possible effects of brexit, in terms of the risks to the irish economy, to the financial system, and to consumers. since the referendum in june 2016, the main impact thus far has been through the depreciation of sterling against the euro. however, the significant trade and investment links with the uk mean that the irish economy is more exposed to the risks from the uk ’ s departure than any others, apart from the uk. second ensuring that existing irish financial services firms understand and are planning for the impact that brexit will have on their businesses, so that firms can continue to serve customers after the uk departs the eu. the third important area has been wider contingency planning for the system and taking actions to mitigate the most important and immediate threats to the financial system. ensuring there is no loss of market access for the payment and settlement of equities and exchange traded funds ( etfs ) for example. finally, we have been dealing with the authorisation of firms. of which there were well over 100 applications for either new licenses or extensions to existing ones. these applications vary from large banks to small investment firms or payment institutions. overall, in terms of our wide work on brexit, we have tried to be as transparent as possible. for example, we have published our quarterly reports prepared for the commission of the central bank ( our board ), albeit in redacted format on our website5. a no - deal brexit would likely bring considerable volatility to financial markets, with heightened stress and a potentially large depreciation of sterling6. following the financial crisis, we have been building resilience in