Economics: Recently published indicators of Irish economic activity have been looking good enough to encourage most commentators to upgrade their forecasts for this year and next. This week, for example, the ESRI unveiled its latest prognostications. It now sees the GDP volume growing by 4.6 per cent in 2004 and by 5.2 per cent in 2005, significant upward revisions from its previous forecasts of 3.5 per cent and 4.5 per cent respectively.
Other forecasters are even more bullish. Bank of Ireland's Dan McLaughlin, for example, now expects GDP to increase by 6 per cent this year.
The latest batch of forecasts mark a sufficiently positive shift in opinion amongst the forecasting fraternity to prompt newspaper headline-writers to announce that the Celtic Tiger has come roaring back after a three-year exile.
What are we to make of all this? Is the hype justified or is it just a form of wishful thinking? The latest economy-wide employment data are as good a place as any to start with, partly because they have helped to fuel the recent outbreak of optimism, but more importantly because they provide at the same time the most comprehensive and most meaningful picture of the economy, albeit one that is a little dated at this stage.
The latest figures, courtesy of the CSO's Quarterly National Household Survey, relate to the first quarter of this year. They show that total employment across the economy was up by 52,000 compared with the same period of last year. This implies a growth rate of almost 3 per cent, the highest achieved since mid-2001.
These are undoubtedly encouraging numbers, all the more so when the balance between the public and private sectors is considered. Employment in the public sector continues to grow: in the first quarter, it was 3.4 per cent higher than a year earlier. This represents the continuation of a decelerating trend that has been in place since early 2002.
On the other hand, the rate of employment growth in the private non-agricultural sector continues to accelerate and reached 3 per cent year-on-year in the first quarter, the highest rate reached since early 2001 (though still well off the 6-7 per cent annual growth rates achieved during the best year of the Celtic Tiger period).
So, not only is overall growth in employment picking up, but it is now much better balanced between the public and private sectors than it has been for several years.
At a finer level of detail, however, there are somewhat more ambiguous signals. Industry is still shedding jobs. In the first quarter industrial employment was 3 per cent below its year earlier level. This contrasts with the 2 per cent annual growth achieved between 1998 and 2000, when the Tiger was roaring most lustily. The other great mainstay of exporting activity - business services - is currently growing employment at a respectable, if modest, 2 per cent annual rate, a pale shadow of the near-11 per cent rate of expansion that occurred in the late 1990s.
The big gains in private sector employment recently have been in construction (up by more than 7 per cent year-on-year) and in wholesale and retail trade (up by more than 3 per cent).
Two observations about these detailed numbers. The first is that they point to the persistence of sluggish growth in exports and, as such, suggest that the traditional locomotive of Irish economic activity has yet to build up a significant head of steam. This is in line with the picture painted by the latest available data on industrial production and merchandise trade numbers.
For example, the volume of industrial output in the first quarter was just 4 per cent above its year earlier level, and almost 6 per cent down on the preceding quarter, while the value of merchandise exports in the same period was up 8 per cent year-on-year, but virtually unchanged from the previous quarter.
The second observation is that where a more buoyant performance has been recorded (as in construction and retailing and wholesaling), it is not likely to be sustained, all the less so if the exporting sectors do not mount a strong and convincing recovery.
Rumours that the Celtic Tiger has returned are therefore more than a little premature. Indeed, the hope that the Celtic Tiger will return at some point in the near future is quite misplaced. Sure, it is possible that a 6 per cent growth rate will be achieved in any one of the next few years (but not this year, I think). It is even possible that growth rates in the range 5-6 per cent could be achieved for two or three years back-to-back. But a return to 8-10 per cent growth rates sustained over a five- to seven-year period, as in the 1990s, is simply not possible. The latest QNHS data illustrate why this is the case.
For one thing, the economy is not far away from full employment. The current unemployment rate of 4.4 per cent is not much above the 3.6 per cent rate at which it troughed out in early 2001.
So, one of the important sources of fuel for the rapid expansion of the Celtic Tiger period, namely the huge pool of unemployed labour (the unemployment rate was almost 16 per cent in 1993 and 8.5 per cent as recently as early 1998), has been almost fully exhausted. Moreover, another big source of fuel - rapidly rising labour force participation rates - has been greatly depleted.
What all of this means of course is that prospective employment growth over the coming years will be quite moderate compared with the huge gains made in the 1990s. In these circumstances the only way to replicate the extraordinary output growth of that era would be to engineer a sharp (and implausible) acceleration in productivity growth.
Jim O'Leary is lecturing in NUI-Maynooth. He can be contacted at jim.oleary@may.ie
