Quarterly Economic Commentary (Summer 2003)

08/07/2003

Quarterly Economic Commentary (Summer 2003)

By Daniel McCoy, David Duffy, Adele Bergin, Joe Cullen



Some of the main findings of the analysis include:

• Growth patterns for 2002 varied significantly with real GDP increasing by 6.3%, while real GNP grew by just 0.6%. Our forecasts for this year and next are for output growth well below the economy’s potential. Growth of 2.6% in real GDP and 2.4% in real GNP is expected for 2003, followed by rates of 3.1% and 2.9% respectively for 2004.
• As the economy grows below its potential, the prospects for employment growth in 2003 and 2004 have diminished considerably with rates around 1%. As a consequence the unemployment rate is forecast to rise, averaging 5.0% in 2003 and 5.7% in 2004.
• The strong appreciation of the euro throughout the first half of 2003, coupled with slower growth in output, is bringing about a strong dis-inflationary trend in Irish consumer prices. The inflation rate is expected to average 3.8% in 2003 and further moderate to 2.7% in 2004. However, inflation in consumer prices remains high relative to Ireland’s main trading partners.
• Greater pressures on domestic competitiveness are emerging from the strength of the euro. The decision by the UK to postpone euro entry exposes indigenous firms to ongoing trading difficulties as the potential for further sterling depreciation against the euro remains.
• The prospect of continuing exchange rate pressures necessitates that immediate attention is given to both price and non-price factors in restoring cost competitiveness. This requires that domestic costs be productivity-justified. The onus in achieving this falls as much on the sheltered sectors of the economy, where price growth has been most resilient, as on the exposed trading sectors. The case for stepping up competition policy and regulatory reform in these sheltered sectors has never been more compelling.