PPF has had its day, says leading economist

Partnership agreements such as the current Programme for Prosperity and Fairness (PPF) have outlived their usefulness, a leading economist said yesterday.

NCB Stockbrokers' chief economist Mr Dermot O'Brien acknowledged that social partnership had worked very well. But he added that the terms of the latest deal between the Government, employers and trade unions recognised that earnings grew at a faster rate than planned in the last two years of the previous agreement.

Citing wage rises outside the bounds of the Programme for Competitiveness and Work (PCW) towards its end, he said the Government was locked into commitments on tax at the same time.

"My own personal view is that we should abandon national pay deals," said Mr O'Brien. When asked whether the PPF should be scrapped, he said: "I think they have served their purpose . . . The likelihood is that wage rises will continue to grow."

Mr O'Brien was speaking after a briefing to launch a CD-Rom on his upbeat view of the Irish economy. NCB plans to send some 6,000 copies of the CDRom to its clients and to international investment houses.

Stating that he expected growth this year to reach 10 per cent before declining next year to about 7.5 per cent, he said this reflected constraints in the labour market. He added, however, that the positive impact of demographic change was not yet exhausted.

Mr O'Brien forecast annual growth of between 6 and 7 per cent and criticised certain observers who have questioned the State's economic performance.

"It's been going for five years now and at this point I would have thought people would be beginning to say we're not going to fall off the cliff," he said.

Mr O'Brien dismissed suggestions that revelations from the Moriarty and Flood tribunals would lead investors to shun the Republic. "It's not a big issue for investors," he said, adding that the issues being dealt with were historical.

On interest rates, he said the European Central Bank was likely to raise its base rate to 4.5 per cent from 4.25 per cent towards the end of this month or in September. Mr O'Brien said he expected the rate would reach 4.75 per cent by the end of the year, with the possibility of another quarter-point rise in the first half of next year.

On property prices, Mr O'Brien said he was not forecasting a fall. A supply of up to 55,000 new units would be needed each year for 10 years before this would happen. "As far as borrowers and lenders are concerned, we see little evidence that either is overstretched," he said.

On inflation, Mr O'Brien forecast the rate would peak at about 6 per cent before declining gradually next year as the effect of this year's tobacco and oil price increases was unwound. "By the end of next year, we should be talking about inflation of 3 per cent, and it may be a bit lower than that," he said.