Quarterly Economic Commentary, Winter 2004

December 21, 2004

News

21/12/2004

 

Quarterly Economic Commentary, Winter 2004

Daniel McCoy, David Duffy, Adele Bergin, Shane Garrett, Yvonne McCarthy

Embargo: Tuesday, December 21st, 2004 at 00.01a.m.



Some of the main findings of the analysis include:

 

 

  • Economic conditions have remained strong throughout 2004 with output growth in real GDP terms expected to average 5.5 per cent for this year and 5.0 per cent in 2005. The more significant measure for Irish incomes is real GNP, which is anticipated to grow by 5.1 per cent in 2004 and 4.6 per cent next year.
  • The labour market continued to tighten during 2004 with strong employment growth expected to average 2.6 per cent for the year. The unemployment rate is expected to average 4.4 per cent in 2004 and to drop to an average of 4.3 per cent in 2005.
  • Wage growth is expected to moderate to an average of 4.4 per cent next year, down from 5.5 per cent in 2004 but still well in excess of expected consumer price inflation. Ongoing euro appreciation, particularly against the US Dollar; an expected rise in interest rate pushed back towards the end of the year; and the absence of indirect tax rises in Budget 2005 all combine to curtail price inflation in 2005 to an expected average of 2.1 per cent.
  • Irish public finances continue to be in a healthy position. While the fiscal stance adopted in Budget 2005 is expansionary with the general government balance expected to return to a deficit position in the order of 1 per cent of GDP, the general government debt to GDP may still move below 30 per cent.
  • There are potential downside risks for the Irish economy over the next few years. These stem from necessary adjustments within the US economy and from extent to which Irish economic growth is exposed to the high volume growth of house building. A gradual unwinding from these positions would be in the best interests of the Irish economy. However, unexpectedly sharp corrections in either case – through further sustained dollar depreciation against the euro or falls in the number of new houses built towards levels consistent with household formation requirements – have the potential to reduce predicted economic growth prospects substantially.