Economic growth ‘to be maintained’

By Ann Cahill, Europe Correspondent

The forecasts for Irish GDP growth and inflation for this year and 2004 are very positive according to the economic outlook released by UNICE yesterday, but IBEC which is a member of UNICE says the country's business climate will remain static.

Ireland's GDP growth, estimated to be 3.5% this year, is forecast to grow by 3.8% next year the highest in the EU and well above the average of 2.2%.

Inflation is forecast to drop from 4.2% this year to 3% in 2004, which would be a little over 1% more than the eurozone average.

Unemployment at 5.3% is forecast to remain static this year and next and well below the 8.6% in the eurozone.

However, despite these figures, IBEC said they were not expecting things to change for the better or worse.

Only Spain and Italy predict a more favourable business climate, due mainly to increased domestic demand. "And in Denmark, the current Wunderkind of Europe, economic crisis seems far away," said the UNICE

report.

The UNICE economic outlook for Ireland was based on an IBEC report in which they rated the trend in profits and investment over the next six months in services and industry as negative.

The employers' group said monetary policy is appropriate; the tax burden on business decreased over the past six months the only country to report this; regulations that harm competitiveness have also decreased; and they expect real labour cost increases to keep pace with labour productivity.

On general economic policy, IBEC believes public finances will achieve balance over the medium-turn, policy co-ordination at EU level has improved the national management of public finances and they expect consumer confidence will develop over the next six months.

The general economic gloom however was underlined by the European Commissioner for Economic and Financial Affairs, Pedro Solbes, who cut the economic growth forecast for the eurozone from 1.8% to 1.2% for 2003.

He said the economic growth has turned out to be significantly weaker than anticipated last autumn and it is expected to remain sluggish during the first half of this year.

The threatened war has increased uncertainty, sapped consumer confidence and pushed up oil prices, but is not the only reason for the weakness of the euro-area economy, the report said.

Other factors include the dramatic fall in equity prices since their peak in mid-2000, the need to restore corporate balance sheets and economy's inability to resist shocks.

On the positive side, there has been a gentle decline in core inflation, a progressive pick-up in labour productivity, stabilisation of business confidence and lower interest rates which set the stage for a future recovery.

The sluggish growth since 2001 may have led to some pent-up demand, which could propel growth once confidence returns.