Quarterly Economic Commentary Spring 2004

March 31, 2004

News

31/03/2004

 

Quarterly Economic Commentary Spring 2004

Press Release Embargo: Wednesday March 31st, 2004 at 00.01a.m.



Some of the main findings of the analysis include:

 

 

  • The outlook for the Irish economy remains uncertain and is dependent upon a strong international recovery. We forecast 2004 growth of 3.5% in real GDP and 3.3% for real GNP, followed by rates of 4.5% and 4.4% respectively in 2005.
  • Following an exceptional strong employment growth of 1.8%, the average unemployment rate in 2003 was 4.7%. Labour market conditions are expected to deteriorate moderately this year and next indicative of the lagged impact of an economy growing below its potential. We forecast the unemployment rate to continue rising to average 4.9% in 2004 and 5.0% in 2005.
  • As anticipated inflation in consumer prices has moderately substantially over the course of 2003 to average 3.5%. Inflation is expected to average of 1.8% in 2004 and 2.0% in 2005 respectively. The unwinding of inflationary pressures will reflect low price growth internationally with the forecast rise in 2005 predicated on a modest depreciation of the euro and higher interest rates.
  • Uncertainty about the trajectory of the euro/dollar exchange rate is significant. If the euro were to appreciate considerably, the competitiveness losses would reduce our growth and inflation forecasts while raising those for the unemployment rates.
  • Despite the forecast moderation in the rates of price and wage inflation, Irish international competitiveness will still be under pressure given the already relatively high Irish cost levels. The true picture of Irish productivity performance is seriously distorted by the flattering contribution provided by a limited number of high value-added activities, but nonetheless it is important that attention be given to productivity-justified wage costs.
  • The upcoming negotiation on the wage terms for the second part of the Sustaining Progress social partnership agreement must bolster Irish competitiveness by steering wage growth towards rates in line with both realistic national productivity growth expectations and cost trends across competitor nations.