Quarterly Economic Commentary (Spring 2003)

April 17, 2003

News

17/04/2003

 

Quarterly Economic Commentary (Spring 2003)

Daniel McCoy, David Duffy, Adele Bergin, Joe Cullen

Embargo: Thursday April 17, 2003 at 00.01 am Some of the main findings of the analysis include:

 

 

  • Economic growth in 2002 reveals very different patterns depending on the measure used. The economy showed no slowdown at an estimated 5.7% growth in real GDP terms but a sharp deceleration at 1.1% growth in real GNP terms. The large gap reflects the robust growth in net factor incomes, particularly strong profit repatriations out of Ireland and weak foreign earnings by domestic firms.
  • While the outlook for the economy remains uncertain, we forecast that the Irish economy will continue to grow below its potential this year and next. In 2003 growth of 3.0% in real GDP and 2.5% for real GNP is forecast, followed by rates of 3.7% and 3.5% respectively in 2004.
  • Following an average unemployment rate of 4.4% in 2002, labour market conditions are expected to deteriorate considerably in 2003 indicative of the lagged impact of an economy growing below its potential. We forecast the unemployment rate to continue rising to average 5.3% in 2003 and 5.5% in 2004.
  • Although inflation in consumer prices has been close to 5% in the first quarter of 2003, we expect price increases to moderate substantially over the course of the year to average 4.3% and to fall to an average of 3.2% in 2004. This unwinding of inflationary pressures will reflect low price growth internationally, the continued appreciation of the euro and more moderate wage growth both this year and next.
  • The terms of the new social partnership agreement, Sustaining Progress, should reinforce the dis-inflationary trend in the economy. We estimate that the terms of the agreement including public sector benchmarking provisions provide for wage growth of approximately 4% and 3% in 2003 and 2004 respectively. These terms should move the economy closer to sustainable, productivity-justified pay rates.
  • Given the tighter public finance position, a more focused sense of national investment priorities is needed to ensure that necessary investment is not restricted given its importance for the economy’s long-run growth. The low interest rate environment creates opportunity for economically justifiable investment to be undertaken while respecting the constraints of the Stability and Growth Pact.