Figures give State a reality check

Analysis: From time to time we need a friend to tell us that we aren't really as good as we think we are. The friend hopefully gives you some good news about yourself first, but then takes you step-by-step through your failings.

The CSO's latest Quarterly National Accounts provides such an economic reality check. It shows that the economy - as measured by Gross Domestic Produce - grew annually by 4 per cent in the second quarter of the year, following growth of 2 per cent in the first quarter.

So in the first half of the year, the economy grew by about 3 per cent. The difference between first and second quarter growth rates reflects some volatility relating to exports and imports.

Gross National Product (GNP) - which strips out some of this volatility - has grown by just over 3 per cent in the first half of the year. That's the good news; we're still better than the euro zone, whose economy is growing by barely over 1 per cent.

Now to those failings. The first is over-confidence. This summer the Government - buoyed by strong tax revenues and employment growth - predicted that our economy would this year grow by 5.1 per cent. The growth rate for the second quarter is 4.1 per cent, and the difference is not academic.

The second failing is a lack of balance. Investment is growing handsomely, by 11.4 per cent, and personal consumption is growing strongly, by 4.7 per cent. But growth in net exports - a sign of how competitive we are - actually fell by over 2 per cent.

This offset the growth in government spending, leaving the economy reliant on personal consumption and investment. But consumer and business sentiment has become less buoyant recently. Economic activity in Europe and the US has also worsened. And growth in housing construction cannot go on forever.

The final failing is complacency. Employment surged by 93,000 in the 12 months to May of this year. This is a growth of 4.5 per cent and is faster than our rate of economic growth. But two fifths of that is made up of construction jobs, and a further fifth by financial services jobs, many of which may be linked to construction.

Perhaps the economy will overcome these failings and grow by 5 per cent over the full year.

Although not impossible, this is most unlikely. Rather than relying on such a scenario, the Government might conclude that a pre-emptive dose of humility is always a wise precaution.