The recent increases in longer-term interest rates could restrain housing activity as well as other interestsensitive areas of demand, and some further pickup in the dollar could weigh on net exports and business investment. Recent months have seen an increase in the upside risks to domestic demand. Sentiment has increased along with equity prices, which are up around 10 percent since October.
The combination of our views on the growth of trend labour input and trend labour productivity led to our projection for potential output growth of 2.8 per cent this year and 2008, and 2.7 per cent in 2009. This compares with the 3 per cent assumption for annual growth of potential output that the Bank had been using earlier this decade.