Economist rejects grim outlook

ONE of the country's top economists has rejected the popular view that the economy is a basket case and is headed for trouble.

Dan McLaughlin, chief economist for Bank of Ireland Treasury & International Banking, said the budget would be in surplus this year by 5.1billion, despite the dip in tax take.

Dr McLaughlin said the government deficit for the year would be about 200m due to a capital deficit of 5.3 billion.

Even by traditional measures, Irish government spending was not as out of control as it had been earlier, he said.

The poor tax take, highlighted in exchequer returns, was a mystery, but improvement for the rest of the year was expected.

Despite miscalculation on the tax front, the economy would grow by 5.5% this year and would return to trend growth in 2003 of a rate 6.5% higher than most forecasts.

The budget surplus might emerge at 5.1billion against a 5.6billion target, offset by a 5.3billion capital deficit.

Such an out-turn would leave the government facing a exchequer borrowing requirement of 200million, equivalent to 0.2% of GDP.

This year, exports would be the main driver of growth, with domestic demand softening. The chemical sector would be the main driver, particularly medicines and pharmaceuticals.

Unemployment would peak at 4.5% in winter next year before stabilising.

In 2003, inflation would decline, and Ireland would grow at twice the EU rate of this year.

"The exchequer finances, which have given rise to some hysterical commentary, will shift to a modest deficit in 2002 and 2003.

"This is not a cause for concern in a period of sub-trend growth, particularly as the source of that deficit is capital spending," Dr McLaughlin said.

But he stressed that "the days of wine and roses are well and truly over".

Given the slowdown in the economy, the government would not have surpluses to meet capital spending without having to borrow, he said.

It was clear that the government spending level, running at 19%, could not be sustained next year without borrowing.

Dr McLaughlin said, however, that the economy would still perform well in the years ahead.

It was clear the government would face tough choices in what it spent, he said.