COMMENTARY

The International Context

We begin our review of developments in the world's major economies by highlighting a number of issues:

* First, the world's major economies are all performing well in 2006 with both Japan and Europe showing stronger performances than in recent years.

* Second,

oil prices have generally increased since June and broke the euro78 per barrel mark in response to the conflict in the Middle East on July 14. Around mid-June the price of Brent Crude had eased to euro67/68 from a high of over euro74 in April but late June and early July have seen increases. Prices eased again in mid-July but we generally seem to be in a period of rising oil prices.

* Third, higher than expected inflation figures in the United States led the Federal Reserve to continue increasing interest rates.

* Fourth, indicators of strengthening activity and hence fears over inflation led the ECB to accelerate its pace of interest rate increases.

Below, we will comment on the implications for Ireland of these developments but first we will consider specific developments in the major economies.