Despite the severe infrastructural bottlenecks (in the housing and transport infrastructural sectors) and the fall in short term unemployment below 4 p.c., both the ESRI and the Central Bank are forecasting continued rapid growth in the Irish economy in 1999, ‘well above’ (to quote the Central Bank) ‘the long term growth potential’. In its Winter Quarterly Bulletin, published late last month, the Bank estimated GDP growth for 1998 at 9.5 per cent, with a rate forecast to average some 7 p.c. for the following two years.
This compares with a considerably more subdued 5.5 per cent forecast by the ESRI in its November Quarterly Economic Commentary, based on late November (pre Budget) data, whereas the Central Bank had the benefit of knowledge of the full budget measures.
On the balance of payments front, the Central Bank is forecasting a comparatively healthy balance of IEP?1,150 (2.25 p.c. of GNP) for 1999, compared with IEP?1,350 (2.75 p.c. of GNP) for 1998. The ESRI however sees the balance sliding from 3.5 p.c. in 1998 (IEP?1,592m) to just 1 p.c. (IEP?474 million) in 1999.
The ESRI, in its commentary was very pessimistic about the prospects for the UK economy in 1999, ‘as it reaches the end of the expansionary phase of its cycle, exacerbated by the lagged effects of the prolonged over-valuation
of sterling.’
Due to the UK situation and the reverberations of the international financial crisis on Ireland’s export markets, the ESRI forecasts a drop in the growth rate to about 5.5 per cent in 1999, in1998 it forecast 8.25 per cent. The most obvious danger, according to the Institute, of a smooth transition to a sustainable growth rate in 1999, is of too large a loss of competitiveness here due to excessive pay increases.
‘If rapid long term growth is to be maintained, Irish pay settlements need to be only a little higher than those in other euro countries,’ according to the report. It points to the ‘less obvious, but real risk of alienating our fellow members of the EU by pursuing too wide a range of policies perceived by them as inappropriate for a country close to EU average income levels.’ |
