Economists clash over outlook for economy

TWO of the country's top economists have clashed fundamentally on the outlook for the economy.

Friends First chief economist Jim Power says inward investment has dried up and he warns that job losses are set to rise as multinationals retrench further.

"There are no impending signs of recovery in the economy and consumers are unlikely to give it the boost it currently needs."

Mr Power is sticking to a 3.5% growth figure for this year, similar to the revised figure from the Department of Finance. But Bank of Ireland treasury and international banking chief economist Dr Dan MacLaughlin

remains bullish. On Tuesday, he said GDP would grow by 5.5% this year with the economy moving to trend growth of 6.5% in the following years.

Dr McLaughlin has been consistently bullish about the economy in the face of the sharp slow down.

He said: "We believe that growth in 2002 will exceed 5% with exports the main driver. GDP growth will accelerate throughout the year, picking up from Q1's 2.9% and we expect a return to trend growth of 6.5% in 2003."

On the exchequer finances, which Mr Power warned were in serious trouble, Dr McLaughlin is less concerned. The national finances have "given rise to some hysterical commentary."

He accepts they will go into deficit in 2002 and 2003, and still believes tax revenues will not be as bad as the exchequer figures imply. But he rejects the Jim Power view that the economy is in dire trouble.

On the impending deficits this year and next he said: "This is not a cause for concern in a period of sub-trend growth, particularly as the source of that deficit is capital spending."

Mr Power clearly disagrees with the stance of Dr McLaughlin.

"The Irish economy has not proved immune to the global economic slowdown of the past two years. Although some commentators are still not prepared to admit it, the Irish economy has experienced a rather dramatic deceleration in activity over the past 18 months. This trend shows little sign of reversing before the second half of 2003, and despite some recent suggestions to the contrary, there is a serious cause for concern in relation to the health of the public finances."

Furthermore, Mr Power warned that the level of foreign investment Ireland has enjoyed was currently under threat from other factors and not just the global slowdown.

"Over the next couple of years, Ireland will do well to hold on to the existing level of jobs, rather than expand the foreign direct investment side of the economy," he warned.

Several factors are working against us in the fight for new jobs, including poor infrastructure and the rapidly rising domestic cost base, and the question marks over Ireland's future role in the evolving European model are undermining Ireland's position as a location for FDI, he said.