Relative to the fantastic rate of growth to which we were accustomed over the last nine years, growth in the second quarter of 2002 was modest, compared with the same period in 2001. Gross Domestic Product (GDP) is up 6.5% in the second quarter, and Gross National Product (GNP) up 4%.
It looks like growth for all of 2002 will end up being in the 4% range, down from over 5% last year and double-digit figures during the big 'boom' years.
While 2002 may see us record our slowest rate of economic growth in nine years, we will are still the fastest-growing member of the Euro-zone. And while the results are not up to recent standards, at least we did record growth in the 2nd quarter, which is an improvement on the 1st quarter.
The fact the US Central Bank has again cut interest rates should eventually help us expand again at the end of next year.
Firstly, let's look at the data in detail to see why reductions in American interest rates are so important to us. You may have noticed the two measures of growth detailed above are quite different, with GDP appearing stronger than GNP. There's an important reason for this.
GDP measures the value in monetary terms of all the goods and services produced in the country. GNP is the same as GDP except that from it is subtracted outflows from the economy. In Ireland's case this principally means profits made by multinationals, which are repatriated to the home countries of those multinationals and not spent here.
Given the size of our multinational sector, GNP is actually a more realistic indicator of our own economic health.
GDP, which includes the profits made by multinationals, increased almost three times faster on an annualised basis than GNP in the first half of 2002. Without the input of our multinational sector, our economic growth for the first half of 2002 would now look very anaemic indeed, compared with the double-digit growth of recent years.
This is no surprise. Ireland, as a small open economy on the periphery of Europe, remains heavily reliant on its external trading partners to sustain its economic growth. This is why we have been so worried over the past year. The global economic downturn has eroded 50% of the value of most major stock markets since they reached their peaks in early 2000.
As a result we have seen numerous manufacturing and service operations close in Ireland in the past year, as nervous customers reduced corporate profitability.
When faced with deteriorating markets it was only to be expected that multinationals would tighten their belts abroad, scaling down operations in countries such as Ireland, rather than cut costs in their home markets.
However, the proactive and growth- orientated US Central Bank, the Federal Reserve, last week tried its best to call a halt to the global economic downturn. In a surprise move, the Fed slashed US interest rates by 0.5% to bring the cost of borrowing in the US to a new 40-year low of 1.25%.
The Fed knows the key to rejuvenating the US economy lies in encouraging businesses to start investing again, and by reducing the cost of borrowing to the point at which money is effectively free, they hope to kick start the US, and hence the global economy. Given our obvious dependence on our predominantly US owned multinational sector for economic growth, we owe the Fed for taking such a decisive step.