Government stands by growth prediction of 5%

The Government has said the economy will grow by around 5 per cent this year despite expectations the forecasts in the mid-year Economic Review and Outlook would be lowered.

The review, published this afternoon by the Department of Finance, forecasts that GNP will grow by 5 per cent in 2005, and GDP by 5.1 per cent.

This year inflation is forecast to average 2.4 per cent in consumer price index terms.

On a harmonised basis, Ireland's inflation rate is now running close to the euro area average following a number of years when the country topped the euro area inflation league table.

For the year as a whole, Ireland's HICP (harmonised index of consumer prices) inflation rate is forecast to average 2.2 per cent, broadly in line with the euro area average.

The review also showed that last year GNP grew by 4 per cent while GDP growth was 4.5 per cent.

Employment growth was particularly robust at 3 per cent or over 54,000 new jobs, the highest number of jobs created since 2001. As a result, unemployment remained low and fell to 4.4 per cent.

Inflation continued to moderate in 2004 with the Consumer Price Index falling to 2.2 per cent from 3.5 per cent in 2003.

The report warned that high oil prices "could result in slower international growth if sustained" - something which would impact negatively impact on the local economy.

Minister for Transport Martin Cullen said the figures confirmed Ireland's economic fundamentals "remain strong".

Minister for Finance Brian Cowen also welcomed the continued positive growth outlook. But he said that for the performance to be maintained the country "must stay competitive and manage our unit labour costs accordingly".

The outlook for economic growth was dampened yesterday by trade statistics from the Central Statistics Office, which showed exports falling by 11.4 per cent in June, compared with May, when seasonally adjusted.

The balance of exports over imports fell to €1.99 billion, its lowest level in five years. In the first half of the year as a whole, export values grew by just 0.6 per cent year-on-year, while imports grew by 8 per cent over the same period.

The latest trade statistics imply that poor export performance will curb growth in the second quarter of the year. Despite this however the Government did cut its most recent forecast for economic growth - around 5 per cent - today in its mid-year review.