Economy to benefit from global growth

ANY upsurge in global activity will see the Irish economy growing significantly, Bank of Ireland chief economist Dan McLaughlin predicted yesterday.

Global growth he said would be US led and signs of this were already apparent with renewed interest in equity markets. Because the Irish economy had weathered the downturn well, it was in a good position to grow quickly in response to any upsurge, he said.

Speaking at the Cork Chamber of Commerce business breakfast in association with the Irish Examiner, he said employment in Ireland has remained remarkably strong, even though growth had shifted from the private to the public sector: “If we are at the turning point, private sector employment will push up. If this is the case we will have come out of this remarkably well.” Dr McLaughlin believes the Irish Central Bank has been too pessimistic about unemployment. The Central Bank has forecast a rise to 5.6% for the year, but half way through 2003 the rate is only 4.6%.

Redundancies in Ireland are down 12% over last year and, according to the Bank of Ireland recruitment index, manufacturing jobs are rising.

While consumption rates are slow and well down from the 9% levels at the height of the boom, he said that they were still growing at up to 3%. “This is lower but relative to other countries it is quite high.”

The Special Savings Incentive Accounts (SSIAs) was partly to blame for the fall in spending. He questioned the introduction of the scheme and described it as the most generous in the history of the world. Dr McLaughlin was optimistic about Ireland's competitiveness: “We are a high income economy, one of the highest in western Europe. We have high wages and this means high prices and we are never going to be a low wage economy.”

If Ireland was producing T-shirts then we would be in trouble, but, as producers of high value added products and with a corporation tax level of 12.5%, the Irish economy has much further to run.

As a result the eastern European economies did not pose a major threat. “We are not going to compete on wages, but on productivity,” he said.

Dr McLaughlin also dismissed suggestions that the housing market was going to collapse, but he said it was unlikely that growth levels of previous years would continue. However, new house price growth was slowing faster than second hand houses as people were prepared to pay a premium for houses closer to amenities and work.

The housing market he said was controlled simply by supply and demand.

It would take a huge unemployment or interest rate shock to hit the market. With unemployment at very low levels and interest rates set to fall further these scenarios were unlikely to occur, he added.