Growth rate of economy not slowing: top economist

THE Irish economy’s growth rate is not slowing and there are no reasons to suggest otherwise, Bank of Ireland’s group chief economist Dan McLaughlin declared yesterday.

In a scripted speech to the Irish Home Builders’ Association, the normally upbeat Mr McLaughlin poured cold water on the pronouncements of a number of economic commentators who believe the rate of growth of the Irish economy is slowing considerably.

He concedes that there has been a spate of forecasts projecting a slowdown in growth.

“In truth most of the current macro-indicators — including retail sales, industrial production, foreign travel and unemployment — do not suggest any softening in the pace of growth.

“Consequently, I still expect 6% growth in 2007, easing to 5% in 2008. Furthermore, it is not clear from some of these more bearish forecasts whether the authors envisage a cyclical slowdown or a structural shift in Irish growth,” he stated.

Mr McLaughlin said a move to a lower potential growth rate would be more serious. However, he said there is no obvious reason why the potential growth of the economy should fall from 5.5%-6% to 3.5%-4% in 18 months as it would require a sharp fall in productivity or a substantial fall in labour force growth.

The Bank of Ireland economist said that while one often hears that growth is unbalanced, the data contradicts this view, as from 2001 to 2006 shows average GDP growth of 5.3%, with all components growing in a 4.5%-5.5% range.

“Others complain that too many resources are being devoted to consumption but consumer spending in Ireland amounts to 46% of GDP, which is not only below the eurozone norm (55%), but has fallen steadily for the past 40 years.”

Despite the building boom, Mr McLaughlin points out that Ireland’s total housing stock is still relatively low — around 415 per 1,000 population against a European norm of 435.

“This suggests that strong housing activity is likely to remain a feature of the Irish economy for some time. The extent of this depends on the interest rate outlook but also the extent of price responsiveness on the downside — completion may fall to around 80,000 this year, and perhaps 70,000 in 2008, in response to the cyclical slowdown in demand.

“A more rapid reduction in completions, however, is possible, which would dampen GDP growth but also offer more support for house prices,” he said.