To some extent, this would have been a natural equilibrating mechanism in a strongly growing economy in a currency union. However, the scale of the loss of competitiveness which occurred went far beyond what might have been reasonable (Chart 5). The domestic demand driven nature of the boom, particularly after 2002, generated a strong boom-fuelled labour market.
Notwithstanding strong inward migration, wage growth moved well ahead of that in trading partner countries. In turn, export growth slowed and the balance of payments moved rapidly into deficit (Chart 5), a development reinforced by the sharp increase in the net external liabilities of the domestic banking system, referred to earlier. 4  BIS central bankers’ speeches  4.