Claws still sharp on Celtic Tiger

With some minor tweaking of Government policies, the Celtic Tiger will roar on for some time to come, according to the OECD. Its latest survey strongly rejects the concept that a relatively high inflation rate is an indicator that the economy is running out of control. Its findings are largely in tune with those of most Irish-based economists.

The booming economy is well supported by the demographics, low tax rates, high productivity and substantial technology-based investment. The rate of economic growth will reduce from the recent exceptional levels in excess of 10 per cent to a more sustainable rate of 7.75 per cent, which is still well above the EU average, according to the OECD.

And just as Ireland is out of kilter with the rest of Europe in terms of its growth rate, inflation will also continue to be higher but this is not seen as a cause for any serious concern.

The OECD looks at the Irish economy from a different perspective than the European Commission and the EU finance ministers, who have made their displeasure about inflation firmly known to the Government.

The finance ministers focus on how the economy works and pay particular attention to the Budget and the effect of these measures on the economy. The package of tax cuts and increased public spending delivered by the Government in the last Budget was deemed by the ministers to have been inappropriate in an economy that was expanding as rapidly as Ireland. The Government was subsequently censured for fuelling inflation with its Budget.

The OECD, however, takes a broader view when assessing economic prospects, paying particular attention in Ireland's case to the additional pressures faced by such a small open economy.

With imports and exports collectively accounting for 160 per cent of Gross Domestic Product, the rate of inflation last year was more heavily influenced by the weakness of the euro and fluctuations in the rate of sterling and the dollar, than any other EU state.

Taking account of these external forces, the OECD says it would be inappropriate to characterise a high rate of inflation in Ireland as overheating.

The OECD is largely satisfied that the direction of Government policies is correct, suggesting that some refinements will help to sustain continued strong economic growth here.

Infrastructure is a priority with the OECD favouring higher density accommodation in the Dublin area as one of the more efficient and cost effective ways of meeting demand for housing.

The survey also highlights potential problems for the State in meeting its commitments in relation to Kyoto and EU regulations which will require some policy changes.