Boom set to continue into 1999

THE high levels of economic growth and growing employment are to continue into 1999, according to a report due to be published today by the Minister for Finance, Mr Quinn.

The "Convergence Programme" identifies low inflation and the pay elements of Partnership 2000 are the key to maintaining Ireland's booming economy.

In addition, we can expect £6 billion in European money over the next three years. This is made up of £4.54 billion from the Community Support Framework, £391 million in community initiatives, £1.05 billion in cohesion funds and £29 million in the EFTA Cohesion Fund.

The report stresses that the underlying goal of Irish economic policy is still to maximise sustainable employment. However, it admits that unemployment remains high, particularly long term unemployment. It also warns that the high level of job creation expected over the coming years will not be matched with a commensurate fall in unemployment.

The Department is expecting economic growth of 4.75 per cent a year over the next three years. As a result non agricultural employment is expected to rise by about 122,000 or 3.4 per cent a year but with agricultural workers leaving the sector, total employment is expected to grow by 114,000 or 2.9 per cent a year. However, employment growth will be offset by an increase in the labour force of 33,000 a year.

At the same time, inflation is expected to remain low, averaging 2.1 per cent over the three years.

According to the report, the main risk is that emerging shortages of skilled labour could limit growth or put upward pressure on wages, with a resulting deterioration in competitiveness. However, the report stresses, that a number of measures have been initiated to address specific skill shortages, particularly Partnership 2000.

The Department also did some analysis on what could happen if the assumptions did not work. One was to demonstrate the effects of a 1 per cent rise in domestic interest rates. And another on the effect of a fall of 1 per cent in demand from OECD countries. While both affected the figures, neither was particularly significant.

According to the report, these results mean that the projections set out in the Convergence Programme are reasonably robust". However, it warns that the forecast assumes that the terms of the pay element of Partnership 2000 will be followed as closely as its three predecessors.

In terms of the convergence criteria for the single currency the programme aims to keep the debt to GDP ratio on a downward path, with the objective of bringing it below 60 per cent at the beginning of the next century.

It will fall to 69 per cent this year and to 64 per cent in 1999. At the same time it promises that the general government deficit will be held at no more than 1.5 per cent of gross domestic product. This is including a negative impact of 0.4 per cent of GDP from the introduction of new accounting rules from Europe, ESA 95, from January 1st, 1999.

The main target of both monetary and exchange rate policy over the three years will be inflation or price stability.

The report is also forecasting an 11 per cent increase in non agricultural exports, a little below the level over the last three years. It warns that agricultural exports are more difficult to estimate, however. With the problems associated with BSE, it is expecting further declines in the years to 1999. At the same time import growth is expected to average 9 per cent. As a result, the balance of payments surplus is expected to contract to about 1 per cent of gross national product.