An outstanding year for the State's economy

On any measure, 1997 has been an extraordinary year for the economy. National output has risen by at least 7 to 8 per cent, inflation has remained remarkably subdued and Ireland's unemployment rate is now edging below the EU average. There is now little doubt that Ireland will be one of the founder members of the EU single currency, which is due to be created on January 1st, 1999. This time next year we will be on the brink of the single most far-reaching step ever taken in Irish economic policy, and EU monetary union will only be days away.

At the start of this year there were still some doubts hanging over the monetary union project. And debate continued about whether Ireland should join if Britain did not. Now the political momentum towards monetary union appears unstoppable and the Government has removed any doubt that it will seek to be amongst the first wave of states moving to the single currency. The performance of the economy during the year supports Ireland's case for membership of the first wave of states moving to monetary union. 1997 economic figures will be used to judge which states will qualify and Ireland will measure up well.

Our rate of inflation is one of the lowest in the EU and interest rates here are close enough to the EU average to meet the single currency rules. Crucially, the public finances are one of the strongest in Europe, comfortably meeting the rules set in the Maastricht Treaty.

And while the level of the national debt remains above 60 per cent of national output - the guideline level set in the Treaty - this ratio of debt to national output has been falling rapidly, meaning we will also qualify under this criteria. Meanwhile, the pound has remained within the ERM bands, although the likely entry level for the Irish currency into monetary union remains something of a conundrum.

So much for the vital statistics of the economy. But what has been most impressive is that 1997 has been the year when the "feelgood" factor has been strongly evident in the economy. Consumer spending has risen strongly, car sales have touched new records and figures from the Central Bank show that both consumers and businesses have not been slow to borrow more.

One of the results has been strongly rising house prices, a trend which has concerned the Central Bank which fears it may knock on to an increase in inflation. A Government-sponsored study is now under way on how this rise in prices can be addressed, but with interest rates set to fall again moving into 1998, there is no easy answer.

It has also been a boom year for business. Company profits have risen strongly and, despite a few tremors, the stockmarket has soared. Irish share prices have added an extraordinary 40 per cent in value this year. And during the year a couple of dozen new millionaires have been created as Irish enterpreneurs sell out part of their shareholding or float their companies on the market. Meanwhile, the banks and the financial sector have had a record year, benefitting from the strong growth of the economy and successful forays abroad.

The boom in share values and the obvious wealth of a few have led to a feeling that the benefits of the Celtic Tiger economy are not reaching everybody. There are two crucial points here.

First, one of the heartening factors of the boom is that much of the extra economic activity is going towards the creation of thousands of new jobs. Total employment in the economy has been rising at an estimated 50,000 jobs a year. And a huge influx of foreign industry lies behind much of the boom, as sectors such as electronics create thousands of new jobs. The announcement that Seagate in Clonmel is to close, however, shows how hard failure of big companies can hit the areas in which they locate. Second, the question of spreading the fruits of growth remains. Unemployment has fallen significantly this year, but the total remains close to 250,000 and long-term unemployment remains a major social problem.

The recent Budget, which offered the greatest gains to the better-off, also reopened the debate about what the Government should do to help those on lower incomes. The argument about whether the £20 million being offered to the GAA could be put to better use showed how this issue was moving onto the national agenda.

Along with this issue of spreading the gains of economic growth, 1997 also highlighted how Ireland must also face the problems of economic success. Increasingly the Government must confront issues of urban congestion, pollution and the shortage of skilled employees which result from the rapid rate of economic growth. Some steps were made to address these issues. A new fund is being established to boost the training of skilled workers to fill jobs in new sectors. The Government is also grappling with urban congestion through projects such as the LUAS, as well as trying to use the last few years of major EU funding to upgrade infrastructure in areas such as roads and ports. While challenges are emerging, nothing emerged in 1997 to suggest that the economy was about to hit the barriers and enter a period of slower growth. While there may be a shortage of skilled employees, Ireland is still winning a major share of inward investment from US multinationals. And this Christmas companies already here will launch a major effort to show those back for the holiday period that Ireland is a good place in which to work, as evidenced by the unprecedented level of job advertisements in this supplement.

Will 1996 and 1997 be seen as golden years for the economy? Certainly the performance of the economy has been extraordinary, as shown by a combination of record growth and low inflation. Strong improvements in productivity in many areas of the economy - many of them underpinned by long-term investment in areas such as education - have allowed the level of economic activity to race ahead without fuelling inflation. And so far this has not led to an explosion in inflationary pressures.

Competition in all areas of economic activity has helped to keep a lid on inflation. For example, the many new retailers entering the market have led to an entire new environment in the sector. And the same applies in many areas of manufacturing and the services sector.

In the jobs market, employers are having to pay up for skilled workers. But with thousands returning home from abroad and a population which is still relatively young, there is no general shortage of people looking for work. For this reason general wage inflation has remained under control.

Whether this heady mixture of strong growth and low inflation can continue is open to question. Much will depend on whether industry here can remain competitive, as the jobs market begins to tighten. This will lead to new challenges for industry in the years ahead. A key factor will be whether the economy can continue to turn out a high number of skilled employees to fill the vacancies on offer and whether businesses and Government can successfully plot our path into monetary union.