The economic expansion that followed the 2001 recession continues at a healthy pace. This is all the more remarkable since economic growth in 2006 – 3¼ per cent as in the year before – was achieved in the face of strong headwinds, such as surging energy prices until the summer and a sharp decline in home construction through the year. The resilience and continued good performance of the economy can in part be traced to past regulatory reforms that created a very competitive environment by international comparison and contributed to impressive efficiency gains over the past decade. With robust growth, labour markets have tightened and some capacity pressures have emerged. Still, given the energy price shock, core inflation has remained relatively well contained, as price and wage setters have expected the monetary authorities to keep inflation low. Although the fiscal stance has been broadly neutral, government finances have continued to improve thanks to an ongoing buoyancy of revenues that has outweighed additional spending. At the same time, the current account deficit has broadly stabilised relative to GDP – albeit at a high level, reflecting the strength of export growth and lower energy prices.