Strength of economic boom intensified last year

The Republic's economic boom in 2000 met the highest expectations with growth, exports and consumption reaching record highs. Data released by the Central Statistics Office yesterday indicates an economic performance on the high side of most analysts' projections, prompting some economists to raise their growth forecasts for the current year.

Gross domestic product improved by 11.5 per cent and gross national product by 10.4 per cent. Exports increased by 17.8 per cent and imports by 17.2 per cent.

Irish consumers benefited from the economic buoyancy and spent freely in 2000 consuming almost £40 billion (#50.7 billion) worth of goods and services at current market prices, up from £34 billion in 1999 and £23 billion in 1995.

Private consumption which jumped to 9.9 per cent in 2000, was driven by strong employment growth, increases in real pay, reductions in personal tax rates and low interest rates.

This was further buoyed by consumer confidence reflecting improved expectations of future job prospects and income growth, Bloxham Stockbrokers economist Mr Alan McQuaid said.

The price rise in personal expenditure was partly affected by the relatively high price jump in imputed rent of owner-occupied dwellings. Nevertheless the volume increase in personal spending last year was the highest on record. One has to go back to 1978 for the next highest increase of 9.0 per cent, Mr McQuaid said. Yesterday's figures confirmed that over the last five years Ireland averaged growth rates of 9.9 per cent more than 4.0 per cent higher than average European Union levels.

The economy still remains strong, although the pace of growth is widely expected to ease back this year.

Goodbody stockbrokers head of research Mr Colin Hunt said he had raised his growth forecast for 2001 to 7.5 per cent and while he expected Ireland's growth rate to slow it will still record the best growth rate of the developed world by a significant margin.

Bloxham's Mr McQuaid is now forecasting GDP growth of just under 8.0 per cent and GNP growth of 6.7 per cent for 2001.

He expects the strong first quarter to be followed by a dip in Q2, a mild upswing in Q3 and a strong finish at the end of the year.

"A robust performance in the latter part of the year will lead to a healthy carry over going into 2002 and it would be no great surprise if the growth rate next year jumped back up again," he said.

Bank of Ireland economist Dr Dan McLaughlin remains most optimistic about growth rates in 2001 and is forecasting growth of 9.0 per cent for the year compared to the Central Bank's growth forecast of 6.5 per cent.

"The reason my forecast is so much above the Central Bank and other forecasts is because I have factored in much stronger exports," Dr McLaughlin said.

Data for the first three months of the year and preliminary data for April show exports are growing around 25 per cent year-on-year and industrial production for the first four months of the year is up 30 per cent.

Dr McLaughlin said on this basis his forecast is not out of line. "The numbers are telling us that we have got an export boom underway and exports have not slowed down at all. In fact they have accelerated in the first couple of months of the year compared to last year." Forecasts from the Economic and Social Research Institute and the Central Bank assume a sharp slowdown in exports this year and as yet that is not evident in the data.

"I think there may be a little bit of a slowdown but if you have three or four months data with exports growing at 25 per cent - to get them to grow at an annual average rise of around 10 per cent, as the Central Bank is forecasting, means they must collapse from here and I don't see that on the cards," Dr McLaughlin said.

Goodbody Stockbroker's Mr Hunt was a little concerned about investment growth and emphasised the need to get the National Development Plan (NDP) back on track.

"If you look at investment growth in total you are looking at an impressive rate of expansion of 18.5 per cent in money terms but in real terms it is only 7.0 per cent," he said.

This implies that the rate of inflation in the investment sector of the economy, which was running at 10.7 per cent, is being eroded away either by increased margins or by wage inflation.

Investment is critical to Irish economic growth being sustained. Mr Hunt said expenditure within the NDP must occur quicker and on the right projects such as road-building, public transport and environmental projects so as to limit the stresses and strains on infrastructure and growth.