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During the first quarter of 2005 real economic activity in Barbados increased by an estimated 2.5%, less than half the growth recorded for the corresponding period in 2004 when the economy was very buoyant, but in line with the average expansion for the last five years. This outturn reflected a moderate performance by the traded sectors and continued growth within the non-traded sectors. Consequently, there was a slowdown in exports and tourism receipts, which, together with an expansion in import growth, resulted in a widening of the deficit on the external current account and a modest increase in net international reserves. These external conditions partly contributed to lower levels of liquidity in the banking system. However, despite the fall in liquidity, Government used domestic resources to finance its deficit, which was occasioned by a decline in indirect tax revenue and higher current and capital outlays.