State set to top growth list in 2003

The Irish economy should outperform its peers again in 2003, despite its recent retreat from the heady days of the Celtic Tiger, according to Goodbody Stockbrokers. In its outlook for 2003, published today, the broker says the fundamentals of the domestic economy remain robust.

However, it warns that wage inflation in 2003 will have to moderate to 4.5 per cent to reflect the more modest growth in the economy, while Government spending should grow at no more than 6 per cent.

It sees gross national product rising to 4.6 per cent next year from 4 per cent in 2002 and inflation moderating to 3.2 per cent. "Ireland is enjoying a reasonably soft landing after the remarkable boom of the 1994-2000 period and growth will rank highest among the developed world again in 2003," says Goodbody chief economist Mr Colin Hunt.

Ulster Bank head of research Mr Pat McArdle mirrors the tone of the Goodbody report in his economic outlook also published today, although he sees growth next year coming in at a more moderate 3.25 per cent, one percentage point ahead of his forecast for GNP growth in 2002.

"The recovery will be driven by better performance from net trade, some pick up in investment and increased consumer spending," he said, although spending would be curtailed by rising unemployment.

The impact of Special Savings Incentive Accounts, which ate into income tax revenues and consumer spending this year will not have the same impact in 2003, he says.

The one exception to growth, argues Mr McArdle, will be Government spending, which will have to be reigned in "after the excesses of recent years".

Like Mr Hunt, he feels Ireland will top growth leagues among developed economies despite lowered expectations.

Goodbody forecasts a new global cycle of foreign direct investment in 2003, which will be supported in Ireland by the low corporation tax rates and our success in retaining high value-added investments in the past couple of years of retrenchment.

"The payback period for the 1990s bull market, in terms of both economics and asset values, is drawing to a close," says Mr Hunt. "A recovery in productivity and profitability over the past 12 months has laid the foundation for a steady, albeit unspectacular, expansion."

He also sees a moderation of house price inflation to no more than 8 per cent and a rise of at least 10 per cent in the value of battered international stock markets, led by the United States. In Ireland's case, Goodbody forecasts more ambitious growth of 15 per cent.

Mr McArdle warns that the Minister for Finance's approach in the recent Estimates was too pro-cyclical.

He criticises Mr McCreevy for not doing more to tackle the public sector pay bill. "The pay bill for 2002 is already too high before benchmarking is even considered," he says. "Pay accounted for all of the spending increase in the Estimates. Non-pay spending, current and capital, had to be squeezed to a zero rise in order to accommodate the higher pay bill.

"A realistic rise in current spending, a reasonable Budget Day package and further spending on pay are simply not compatible," he adds.

However, he says Mr McCreevy has left some room for manoeuvre on Budget Day. "With most of the bad news out of the way, he can afford to mollify some of the aggrieved."