EU predicts Ireland will top euro zone growth in 2003

Ireland’s economy will grow by 3.5 per cent this year according to the European Commission’s spring economic forecast.

The forecast assumes that the recovery will gather pace as the year progresses, but, in the absence of a significant positive carry-over from 2001, annual growth will be far below potential in 2002. European Commission

The EU also predicted Ireland would top the euro zone table with 6.1 per cent GDP growth in 2003.

The EU estimated the economy to have grown by 6.8 per cent in 2001 despite a sharp contraction in the final quarter. It said: "Consumer and business surveys suggest that a rebound from a low in late-2001 is underway."

"The forecast assumes that the recovery will gather pace as the year progresses, but, in the absence of a significant positive carry-over from 2001, annual growth will be far below potential in 2002," it said.

In terms of the labour market it said the steady fall in unemployment since 1996 finally came to a halt in early 2001, with the rate virtually flat to mid-2001 at below 4 per cent.

"Since then, a moderate rise has been recorded, to a level slightly above 4 per cent in 2002-Q1," it said.

"The achievement of effectively full employment," it said "has been accompanied by growing shortages of both skilled and unskilled labour."

The report cited a large tax undershoot in 2001 as the main reason for the decline in the general government surplus from 4.5 per cent in 2000 to 1.7 per cent in 2001. It predicted a small surplus for 2002 assuming tax revenues behave in more predictable ways in 2002.

The EU also noted the improvement in HICP inflation in 2001, to 4.0 per cent on average from 5.3 per cent in 2000. It said this was partly due to a reversal of one-off factors which drove up inflation in 2000 and partly to indirect tax cuts implemented by the budget for 2001.

"However, domestically-generated pressures remained strong in 2001, with underlying inflation (measured as the HICP minus energy, food, alcohol and tobacco) actually increasing from 4.0 per cent in first half year to 4.9 per cent in the second."

As a result, and despite the easing influence of the economic slowdown, average HICP inflation in 2002 is forecast to exceed last year's average, it predicted.

In 2003, however, inflation should ease while continuing to exceed the euro area average, it said.