the rate of inflation for goods remained broadly in line with the euro area average but services inflation moved noticeably higher. this undoubtedly reflected the strength of domestic demand in particular, and occurred in spite of the significant increase in labour supply through substantial inward migration. domestic demand was the main source of output growth. construction spending was still a major contributor, although it is clear, in retrospect, that housing completions reached a peak last year and are declining towards a more sustainable level. consumption growth also remained strong in 2006, buoyed up by the continued growth in employment and earnings. in contrast, export growth was quite muted. the volume of exports of goods and services grew by just 4. 4 per cent, mostly due to trade in services. this implies a decline in ireland ’ s share of world trade. another feature of last year was the further increase in the current account deficit on the balance of payments. the latest cso data indicate that the deficit reached nearly 5 per cent of gnp last year. this indicates a need to rebalance growth. some of this rebalancing will occur, as a matter of course, as the growth in consumer spending is expected to moderate next year. this is likely to result in reduced import growth. a recovery in export growth is, however, also required as a part of this rebalancing. in the long run, in a small open economy like ireland, continued growth in incomes and employment depends, to a significant extent, on a satisfactory performance by the traded goods sectors. in this regard, there are welcome signs of a somewhat improved export performance in the first quarter of this year but we need to see further data in the coming months before we can be confident that a sustained improvement is taking place. last year was a very good one for the public finances. the strength of growth helped to boost revenues resulting in a general government surplus of 2. 9 per cent of gdp, one of the best performances in the european union. some of the strength of revenue, however, reflected the composition of growth, with construction and the property market contributing significantly. this factor was taken into account in framing the fiscal forecasts for 2007 in the context of the last budget. there were also important developments in the price of residential property last year. you may recall, at this time last year, that the bank was very concerned about the reacceleration in house prices that had occurred. current developments are more consistent with stability in the market. looking forward,

- ante prevention and another emphasizing the importance of ex - post measures to resolve the situation in the aftermath. following the global financial crisis, however, all now appear to agree that the cost of a bubble bursting is unbearably enormous. most past bubbles were formed while economies enjoyed low inflation rates. focusing obsessively on the short - term stability of the consumer price index as a way to ensure economic stability will actually have see the following comments. bernanke, ben s., testimony at the joint economic committee, u. s. congress, october 4, 2011 : “ monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the u. s. economy ”. draghi, mario, interview with the financial times, december 14, 2011 : “ monetary policy cannot do everything ”. this comment was made at the press conference on november 16, 2011 after presenting the inflation report. bis central bankers ’ speeches the opposite effect of increasing instability. needless to say, bubbles are not caused by low interest rates alone. however, when the expectation prevails that low interest rates will continue for a long period of time, it is likely to encourage leverage and maturity mismatching between the assets and liabilities of financial institutions. in that sense, i believe that in the conduct of monetary policy central banks also need to be attentive to the accumulation of financial imbalances. my final point concerns the regulatory and supervisory framework. looking back at how bubbles are formed, the bottom line is that it comes down to aggressive activity by both borrowers and lenders. financial institutions ’ activities are influenced not only by the expectation that a stable environment will continue but also by incentives created by the regulatory and supervisory framework. as for the background to such aggressive activities by financial institutions, almost without exception regulation and supervision did not prevent them from getting involved in risky lending, which was, in retrospect, an attempt to improve their low profitability. this was the case in the japanese bubble period and european financial institutions did the same thing during the formation of the global credit bubble in the middle of the 2000s. central banks and the regulatory and supervisory authorities in individual jurisdictions are currently working to reform the regulatory and supervisory frameworks. one important issue in this regard is how to find the right balance between two important tasks : restraining excessive risk taking and securing the profitability of financial institutions. closing words the recent financial crisis has certainly left not