increased intensity of its use that was so evident in the decades immediately following world war ii. since the more than tenfold increase in crude oil prices between 1972 and 1981, world oil consumption per real dollar equivalent of global gross domestic produce ( gdp ) has declined by approximately one - third. in the united states, between 1945 and 1973, consumption of petroleum products rose at a startling average annual rate of 4 - 1 / 2 percent, well in excess of growth of our real gdp. however, between 1973 and 2004, oil consumption grew in the united states, on average, at only 1 / 2 percent per year, far short of the rise in real gdp. in consequence, the ratio of u. s. oil consumption to gdp fell by half. much of the decline in the ratio of oil use to real gdp in the united states has resulted from growth in the proportion of gdp composed of services, high - tech goods, and other presumably less oil - intensive industries. additionally, part of the decline in this ratio is due to improved energy conservation for a given set of economic activities, including greater home insulation, better gasoline mileage, more efficient machinery, and streamlined production processes. these trends have been ongoing but have likely intensified of late with the sharp, recent increases in oil prices. in japan, which until recently was the world's second largest oil consumer, the growth of demand was also strong before the developments of the 1970s. subsequently, shocked by the increase in prices and without indigenous production to cushion the effects on incomes, japan sharply curtailed the growth of its oil use, reducing the ratio of oil consumption to gdp by about half as well. although the production quotas of opec have been a significant factor in price determination for a third of a century, the story since 1973 has been as much about the power of markets as it has been about power over markets. the incentives to alter oil consumption provided by market prices eventually resolved even the most seemingly insurmountable difficulties posed by inadequate supply outside the opec cartel. many observers feared that the gap projected between supply and demand in the immediate post1973 period would be so large that rationing would be the only practical solution. but the resolution did not occur that way. in the united states, to be sure, mandated fuel - efficiency standards for cars and light trucks induced the slower growth of gasoline demand. some observers argue, however, that, even without government - enforced standards, market forces would have led to increased fuel efficiency

rate by year - end may be less than 3 per cent, it is still likely to be twice that of the euro area. this underlines the need to continue to focus domestic policies on promoting competitiveness. so far as fiscal policy is concerned, the commitment to limit the increase in public spending to 7 per cent and to hold the general government deficit to 0. 7 per cent of gdp is to be welcomed. adherence to this target should help to restrain inflation and help competitiveness. in the pay area, the increase in private sector pay this year, on foot of the new social partnership agreement, will be of the order of 3½ per cent, assuming no upward drift. this is close to that in the euro area generally. however, public sector pay increases will be significantly higher than 3½ per cent. this underlines the imperative of delivering productivity improvements that are linked to benchmarking increases in the period ahead. continuing efforts are required to improve productivity performance generally, particularly in the sheltered sectors of the economy and in the indigenous traded sectors. this is especially important in the light of the rapid strengthening of the euro in the recent past and the risk that it could further appreciate. the bank has repeatedly expressed its concern about the excessively high level of mortgage credit growth. there has been very little improvement in this, with the increase still running at 24 per cent. the bank has written to the credit institutions on this matter and it has followed this up by on - site inspections. the results of these are being processed at the present time. the bank has also been concerned about the pick up in house prices in 2002 which continued into the early months of 2003. the property market now appears to have slowed somewhat. it appears that this easing has been underpinned by the fact that the market is now closer to balance than previously. however, we do not consider that a sharp downward correction is likely unless there were some external shock that would cause a hard landing of the economy financial stability as was the case last year, this year ’ s annual report contains an extensive chapter on financial stability. the key conclusion is that the irish financial system continues to be stable. it is sufficiently well capitalised, diversified and healthy to weather an adverse shock. however, the deterioration of the performance of the global economy - especially the delayed recovery - and uncertainty in financial markets since the last financial stability report has eroded its resilience somewhat over the last year. monetary policy the decision of the ecb governing council at its