Quarterly Economic Commentary Summer 2004

June 30, 2004

News

30/06/2004



Quarterly Economic Commentary Summer 2004

Daniel McCoy, David Duffy, Adele Bergin, Joe Cullen

Some of the main findings of the analysis include:

  • Irish economic conditions have improved significantly in the first half of 2004 with output growth in real, inflation adjusted, GDP terms expected to average 4.6 per cent for this year and 5.2 per cent in 2005. The more significant measure for Irish incomes is real GNP, which is anticipated to grow by 4.3 per cent in 2004 and 4.5 per cent next year.
  • Price inflation in Ireland, having fallen by nearly three percentage points during 2003 to average 3.5 per cent, is beginning to tick back up, albeit from relatively low levels of just over 1.5 per cent averaged in the first half of 2004. It is expected that inflation in Ireland will remain around the euro area average of 2 per cent this year and next.
  • The labour market has begun to tighten again during 2004 with strong employment growth expected. The unemployment rate is expected to average 4.5 per cent in 2004 and to drop to an average of 4.3 per cent of the labour force in 2005.
  • The improvement in the public finance position may unleash expectations of a significant potential for taxation reductions and higher expenditure during the emerging economic upswing. Such expectations need to be tempered as large windfall receipts have flattered the current position.
  • Wage expectations also have the potential to move out of line with Ireland’s competitiveness imperative. In this light, the wage terms underpinning the second part Sustaining Progress are to be welcomed in that they steer pay rates in line with emerging price and productivity trends.
  • The decision to opt for another Benchmarking process for public sector pay is perplexing given that the lack of transparency surrounding the original process makes it difficult even ex post to assess its merits. Any future scheme should be designed ex ante to allow for open public scrutiny of subsequent recommendations and the evidence upon on which they were based.