Medium Term Review: 2005-2012

16/12/2005

Medium Term Review: 2005-2012

Authors: John Fitz Gerald, Adele Bergin, Ide Kearney, Alan Barrett, David Duffy, Shane Garrett, Yvonne McCarthy
Embargo: Friday December 16th, 2005 at 00.01 am

The ESRI on December 16th, 2005 is publishing its latest Medium-Term Review of the Irish economy. This Review is published every second year, providing a comprehensive analysis of the prospects for the Irish economy over a seven-year time horizon.

Some of the main findings of this Medium Term Review include:

  • Services are the activity of the future. The market services sector will play a gradually increasing role in raising output and employment. In the medium-term, less output and employment growth will come from the manufacturing sector with the market services sector continuing to grow in importance.
  • While the economy has the potential to continue growing quite rapidly, there are significant dangers on the horizon. If there are no unpleasant surprises the economy could grow at just under 5 per cent a year out to 2010. However, the US economy is currently on an unsustainable growth path with ever-rising deficits. If and when the US economy switches to a more sustainable path this could result in a slowdown in growth elsewhere, including in Ireland. While this is unlikely to happen within the next two years, thereafter there is the risk that Ireland could find itself experiencing a rate of growth below its long-term potential.
  • The very high level of dependence on the building and construction sector leaves the economy vulnerable to shocks. The building and construction sector’s need for an ever-increasing share of national resources has been a source of inflationary pressure. This has had adverse consequences for other economic sectors. As the economy evolves over the coming decade the building and construction sector is likely to fall in importance.
  • Key priorities for policy are:
    • Development policy needs to adjust to take account of the changing roles of manufacturing and services.
    • Managing the exposure of the economy to external shocks and also to its exposure to sudden changes affecting building and construction.
    • Tackling the infrastructural constraint on growth remains urgent. 

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