The odds on a soft landing for the Irish economy have lengthened considerably following the publication of key economic data yesterday.
Gross domestic product - the value in monetary terms of all the goods and services produced in the State - grew by 11 per cent in the 12 months to April 1999.
Definitive figures for last year will not be available for several months but all the indications are that the economy grew by 10 per cent last year and is growing at a similar rate this year.
Retail sales are up 14 per cent on last year and Exchequer tax returns are up 15 per cent, indicating that the acceleration in the economy seen in the last half of 1999 continued unabated into this year.
The economy's ability to sustain these levels of growth is now in doubt. The fears of the European Commission, which last week expressed concern about Irish inflation, are expected to be exacerbated by the latest statistics. Ireland is now growing at more than four times the European average of 2.4 per cent of GNP per year.
"Growth at this rate is putting too much pressure on the system. There has to be some overall loss of competitiveness," warned Mr John Beggs, chief economist with AIB yesterday.
Dr Dan McLaughlin, economist with ABN-Amro, said that the labour market could not sustain these levels of growth. Emigrants were currently returning to Ireland to take up jobs for non-financial reasons. The financial incentives to return to work in Ireland - as compared to the UK - were negative, said Dr McLaughlin.
Once the pool of people coming back for lifestyle and emotional reasons dried up there would be severe shortages in the highskill sectors. The increasing shortage of workers was underlined by inflation figures released last week which showed that labour costs rose by more than 6 per cent in the year to April.
On the positive side, there are very few other constraints on the economy's ability to grow, Dr McLaughlin believes. Ireland is still a relatively low-wage, high-productivity, low-taxation location, with companies operating in the most dynamic sectors of the world economy, he said.
"Maybe we are all being too pessimistic. Korea grew at 8 per cent for 40 years after all."
Outside observers - and European ones in particular - are certain to take a less sanguine view of the Irish economy and the Government's passive approach to inflation. The figures released yesterday will add to their fears that the economy is overheating. "They will trigger all sorts of alarm bells," said Mr Jim Power, chief economist with Bank of Ireland.
Although the Commission seems to be ignoring the unique aspects of the economy, such as the high inward investment level and its favourable demographics, its criticism will increase pressure on the Government to act. "There is a question as to what they can do, but most people would like to see them [the Government] do something at this stage," he said.
"It is doubtful that the economy can sustain growth near the current pace into the medium term," according to Mr Austin Hughes, economist with IIB Bank. If current trends continue, "the Irish economy could be poorly positioned in the event of a deterioration in external circumstances, such as a sharp deterioration in the US economy or an abrupt rise in the euro," he warned.
