Mr. John McCarthy:

It is very difficult to explain. My hypothesis involves sectoral composition from the pharmaceutical sector. I am not sure it is correct but it is plausible. I cannot be definitive. If output is falling in the sector, which accounts for 25% of our exports and a large part of our GDP, GDP is falling but the decrease does not really have a labour market impact because the sector does not employ many people relative to the construction sector or the retail sector at the height of the boom. Employment is one component, with 30,000 people employed in the sector, but we have not seen massive lay-offs in the sector. If output is decreasing without a corresponding impact on employment, that depresses productivity in the sector. The sector is very large relative to overall GDP, which drags down productivity across the economy.

Another element is the stabilisation in domestic demand. Domestic demand is more employment rich than export-led growth. If we are seeing a modest recovery in the building and construction and retail sectors, we will see increases in employment without massive increases in output. These are not capital intensive, they are labour-intensive sectors. There is a depression in productivity from that. In the bubble years, we had weak productivity growth because so many people were employed in the construction and retail sectors. Very few people were employed in the traded sector, where there is strong productivity growth.