Strength in numbers
John Beggs assesses the prospects for the Irish economy in 2001 and predicts a year of sustained growth and lower inflation
Amid the gloom and doom about the health of the global economy, data on the Republic of Ireland continue to show the strength of the domestic economy. Following last year’s torrid rate of growth in real gross domestic product (GDP) of about 11%, the economy will expand by about 7% in 2001. The Irish economy is losing momentum as a natural rate of easing is combined with the impact of external factors including the economic slowdown in the US and the outbreak of foot and mouth disease. The moderation in the rate of economic growth from 11% to 7% represents the largest annual incremental change in Irish economic growth since 1995. But despite this, Ireland will still deliver GDP growth in excess of its international peers.Falling labour supply to constrain economyThe most important domestic factor reducing the rate of Irish economic growth in 2001 and beyond is the ever-tightening labour market conditions. The latest National Household Survey is for the second quarter of 2000. It shows that labour force growth slowed to 2.5% year-on-year compared to 5.2% year-on-year in the final quarter of 1999. This is virtually all due to a levelling off in the rise in the labour force participation rate. Ireland’s labour force participation rate, most notably among females, has now reached the European Union (EU) average. Not surprisingly, the slowdown in labour force growth has been accompanied by a marked deceleration in the pace of employment growth. This fell to 3.8% year-on-year in the second quarter of 2000 from 6.6% a year earlier. Rapid employment growth in recent years has been made possible not just by strong labour force growth, but also by declining unemployment. However, the unemployment rate has now fallen to less than 4% from a high of 16% in 1993. The unemployment rate is now below 3% in Dublin, while the long-term unemployment rate stands at just 1.4% nationally. Inward migration remains relatively moderate and shows no signs of accelerating in response to the large number of job vacancies in Ireland. This may reflect the fact that the UK enjoys virtually full employment while mainland EU has experienced strong employment growth in recent years.
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