A year ago the forecasts produced by the Republic's small but dedicated group of professional economists were so disparate as to defy comparison, writes Una McCaffrey.
Even by Irish standards, 2002 has been a very long year in economics. It has been the year of a thousand clichés, when the Celtic Tiger was dragged to its knees, the over-zealous Celtic cubs had their claws pared and Europe's economic shining light lost its lustre. In short, the much-forecasted global economic recovery did not exactly arrive according to some people's timetable and the Republic's growth suffered as a consequence.
Twelve months ago, the economic forecasts produced by the Republic's small but dedicated group of professional economists were so disparate as to defy comparison.
At the bottom, we had the consistently bearish Mr Robbie Kelleher, head of research at Davy Stockbrokers. This time last year, Mr Kelleher was expecting the Republic to see growth in gross national product (GNP) of 1.6 per cent. At the time, the prediction seemed so low as to apply to some sort of alternate universe but, now that it is safe to exclude a recovery from this year's economic picture, it looks scarily accurate.
The Department of Finance is expecting GNP, the economic measure that excludes the repatriated profits of foreign companies, to come in at 1.8 per cent. At this late stage of the year, it looks like a safe enough prediction, and one closer to Mr Kelleher's than many may have expected.
Just when it looked like the two would collide, however, Mr Kelleher has swiped the rug and reduced his 2002 forecast to just 0.7 per cent. Again, he wins the prize as most bearish professional economist in the Irish market, having cut his forecasts even before the recent "deflationary" Budget. Mr Kelleher sees the global slowdown as the main factor constraining Irish growth.
Back with last December's forecasts, approaching the top of the spectrum was Dr Dan McLaughlin, chief economist with Davy's parent, Bank of Ireland. Dr McLaughlin was expecting gross domestic product (GDP) to grow by at least 5 per cent this year. A perennial bull, Dr McLaughlin has maintained this forecast all year, even through the particularly bad times when others were losing their heads.
Just ahead of Dr McLaughlin was Mr Colin Hunt, director of research at Goodbody Stockbrokers, who also remains happy with the GDP forecast (5.3 per cent) he made this time last year. He is less content with his 4.9 per cent prediction for GNP, acknowledging that growth in multinational repatriations have upset his numbers.
More bullish again last year were NCB economists Mr Dermot O'Brien and Mr Eunan King. Mr O'Brien was expecting GDP growth for 2002 in the region of 7 per cent. Since this includes profits generated in the Republic that eventually end up abroad, GDP growth will automatically be higher than GNP growth, but even with this proviso, the forecast has looked high for a number of months now. Compare it to Mr Kelleher's GDP number, for example, which puts growth at 3.8 per cent.
The Department of Finance's most recent prediction puts GDP growth this year at 4.5 per cent, close to the middle of forecasts and, based on the most recent Quarterly National Accounts, a seemingly justifiable, if slightly high, number. It comes in well above the prediction of the Government-sponsored think-tank, the Economic and Social Research Institute (ESRI), which plumped for 3 per cent GDP growth in research this time last year.
The ESRI acknowledged in its commentary that growth in the Republic was largely dependent on international economies, about which "considerable uncertainties" remained. In GNP terms, the ESRI was expecting growth of 2.1 per cent this year, well below the Central Bank, which foresaw GNP expansion of 3.5 per cent.
The truth probably lies beneath both predictions but, given that the people who are paid to explore every permutation as part of their job come up with such wildly different numbers, it will be close to impossible to pin real growth down until early next year when final growth rates are produced by the Central Statistics Office. Inevitably though, somebody (or bodies) will have failed to win the gold star for predictions.
Taking the stance of the "reasonable man" (sitting on the upper deck of the 46A to Stillorgan, for argument's sake), it is not hard to see how even the professionals would have problems with their crystal balls in the year gone by. As well as the aforementioned global recovery, the variables at work included not-insignificant factors such as the introduction of the euro, unpredictable consumer spending trends and the prospects of the US-led "war on terror".
Moving on a year, the nature of the variables at work may have changed but their unpredictability remains equally apparent. We may have the euro in our pockets but we still have no clear idea of where it might head over the next few months, particularly in relation to the dollar but also against sterling. The global economic recovery remains a mysterious creature, with few banking on when it might rear its head. And, just like last year, the hawkish actions of the US (this time in Iraq) continue to weigh on the financial markets as they wait for the fighting to begin.
Unsurprisingly, the range of forecasts emanating from the Republic's economists for next year is no less wide than comparable predictions were at this point 12 months ago. Still at the lowest end of the spectrum is Mr Kelleher, with his GNP prediction of 1.1 per cent. That figure is based on poor momentum in investment spend and weak import growth, and represents a significant reduction on his previous forecast of 2.7 per cent. For GDP, Davy has gone for 2.6 per cent.
Again mirroring last year's differences of opinion, Dr McLaughlin has come in with a confident GDP forecast of 6 per cent for 2003, on the basis that global economic conditions will improve soon and inward investment in the Republic will be higher than most expect. Exports will also be strong, he says, admitting however that the US stance on Iraq could scupper potential growth.
A similar confidence is felt at NCB, where Mr O'Brien and Mr King are also hoping for GDP growth of 6 per cent next year, coupled with a 4.2 per cent increase in GNP. They say that consumption can be expected to remain strong as long as interest rates stay low and disposable income increases. They describe the recent Budget as "marginally expansionary".
Less optimistic is Mr Colin Hunt, director of research at Goodbody Stockbrokers, who cut his 2003 growth forecasts quite dramatically after the Minister for Finance, Mr McCreevy, delivered his Budget package last month. Moving down from 2003 GDP of 4.6 per cent to 3.7 per cent, Mr Hunt cited inflation and consequently reduced consumption as reasons for the shift. Goodbody foresees GNP growth of 3.6 per cent next year, making the broker unusual in the closeness of its GNP and GDP expectations.
The ESRI is once again feeling cautious, forecasting GNP to grow by 3 per cent in 2003, and GDP to expand by 3.8 per cent as last year's uncertainties persist. Again, the researchers identify an Iraqi conflict as a key risk to this scenario, also highlighting a significant appreciation of the euro against sterling and the dollar as a possible threat. The Central Bank takes a similar line, also forecasting GNP growth of 3 per cent.
Finally, the Department of Finance has taken a place at the lower end of the scale, careful nonetheless not to usurp Mr Kelleher's bottom spot. The Minister's advisers are expecting to see GDP growth of 3.5 per cent and GNP growth of 2.2 per cent, based on "relatively moderate growth" in the first half and "some acceleration" over the remainder of the year.
