Consumer spending drives economy

CONSUMER spending was the main driver of economic growth last year, new figures from the Central Statistics Office (CSO) reveal.

Gross national product (GNP), a measure of economic growth that excludes the earnings of foreign companies based in the country, expanded by 5.4% in 2005. Consumer spending was 5.6% higher last year, making up for the fact that export growth was the slowest since the 1980s.

The figures show that the economy is becoming increasingly reliant on the property and construction sector.

Growth of gross domestic product (GDP), which expanded by 4.7%, was lower than GNP, reflecting the fact that many American companies repatriated billions of euro in earnings from their Irish operations to the US.

In the final quarter of 2005, building output rose by 14%, with housing output up by 9% and commercial developments up 21%.

Finance Minister Brian Cowen said the economy was the fastest growing in the euro area and in line with the country’s sustainable growth rates. “It confirms that this Government’s budgetary policy continues to facilitate sustained economic growth,” Mr Cowen said, adding that he expects GDP to rise by 4.8% this year.

Goodbody Stockbrokers chief economist Dermot O’Leary said the only disappointing performance was that of exports. “With SSIAs due to mature shortly, a stimulatory fiscal policy and building activity continuing at a strong pace, it is very much likely that the domestic sectors can propel the economy forward in the short-term.”

Bank of Ireland chief economist Dan McLaughlin said consumer spending would power the economy forward this year. Retail sales in January were up nearly 10% on last year. He is forecasting that consumer spending will rise by 8.6% this year and export growth has shown signs of picking up.

However, Mr Cowen cautioned that, though the outline for the economy was positive, as a small open economy we must be cognisant of the risks to the global economic environment and the need to maintain our competitiveness.

As talks on a new national pay agreement continue, Mr Cowen said workers should not expect pay rises without giving something in return.

“We can only pay what we can afford. Labour growth has to be dependent on productivity growth and we did not see much productivity growth in the economy last year,” the minister said.