Ireland still in period of growth, says bank economist

The Republic has not lost competitiveness, and the economy is still in a period of unprecedented growth, Bank of Ireland chief economist Dan McLaughlin said yesterday.

Despite "widespread commentary" on a slowdown in the housing market and a loss of national competitiveness, the most recent figures - for the first quarter of 2007 - showed that the economy was accelerating, with GDP growing by 7.5 per cent in the first three months of the year.

He said at Bank of Ireland's quarterly economic briefing that interest rates were approaching a peak, which would result in a sharp fall in inflation next year, and the housing decline would not be as precipitous as had been suggested.

Dr McLaughlin said the strong pick-up in exports belied the claim the Republic was "losing competitiveness at a rapid clip".

He said wage increases and job losses did not necessarily mean that the economy had become less competitive.

Unit wage costs - or the cost of manufacturing in relation to productivity - were currently 40 per cent below where they were 10 years ago.

High-profile redundancies were "inevitable in the healthiest of economies", he added. "It's hard to say we have lost competitiveness."

The €8.5 billion of foreign direct investment in the first quarter of 2007 "wouldn't suggest that we've become some sort of pariah".

He said IT companies such as Intel, Microsoft and Dell, which yesterday announced 100 job losses in the Republic as part of a global cut in its workforce, were experiencing competitive pressures on a worldwide basis - any redundancies were not necessarily the fault of Ireland Inc.

Dr McLaughlin is forecasting that the economy will grow by 6 per cent this year and by 5 per cent in 2008. The consensus forecast among economists is that growth in gross domestic product (GDP) will be lower, at 5 per cent in 2007 and 4 per cent next year.

However, Dr McLaughlin said even if the consensus turned out to be right it would "hardly be disastrous" for the economy, which had been "almost like a model economy" over the past five years.

"If we have the growth we expect in 2007 it will be a fourth year of unprecedented growth. We haven't seen this since the second World War."

The main drivers of growth remained exports and consumer demand. Dr McLaughlin said he didn't believe rates of personal consumption would slow down next year.

The one area where things were "unambiguously" slowing down was capital formation or spending by business, including in the construction sector.

Earlier this year, Dr McLaughlin hit out at negative economic forecasts, saying they were not supported by the data.