Recently released National Accounts figures from the CSO for 1999 provided official confirmation that the Irish economic boom continues unimpeded. Real Gross Domestic Product (GDP) grew by 9.8 per cent last year bringing the cumulative rise in the past six years to 65 per cent. This represents an average annual growth rate of 8.5 per cent, which implies that the pace of growth actually accelerated further during 1999.
All components of Gross National Product (GNP) showed very strong growth led by investment, which grew by 13 per cent in real terms making 1999 the sixth successive year of double-digit expansion in capital spending.
Net exports were also strongly positive rising by 12.4 per cent in real terms against an 8.7 per cent rise in imports. Other features of the report included estimated wage growth of 5 per cent last year and buoyant employment growth of 7.5 per cent. The fact that employment is growing at a faster rate than wage growth suggests that the Irish economy remains extremely competitive.
In the context of the European economy, the Irish performance of the past six years looks even more extraordinary. Cumulative growth in the euro area over the past six years barely amounted to 14 per cent compared with the Republic's 65 per cent.
Exports have undoubtedly been the main engine of growth over this period expanding at a rate of over 16 per cent per annum in volume terms.
The total value of exports now marginally exceeds the value of total GNP. In 1994 exports equated to only 74 per cent of GNP, still a very high figure by international standards. Over the past decade the already very open Irish economy has become even more dependent on international trade.
A key feature of these statistics is that there is nothing to suggest that the Irish economic boom will end anytime soon. One surprise in the figures is that there was large-scale de-stocking in the second half of last year. Presumably, this reflected much stronger than expected consumer demand. The scale of this de-stocking was equivalent to GDP growth of 2 percentage points. The first half of 2000 is likely to see some rebuilding of stocks and this could add substantially to growth in 2000.
The modest 5 per cent pace of wage growth during 1999 belies any fears that the economy could soon lose competitiveness because of excessive cost increases. Although upward pressures on wages and other costs are materialising it usually takes a sustained period of excessive cost growth to seriously damage competitiveness. Whilst this blistering pace of economic growth will eventually be curtailed through resource constraints, the data for 1999 indicate that such a slowdown will not occur this year.
For investors in the stock market the transformation in the Irish economy during the 1990's has far-reaching implications. The increased internationalisation of the economy means that economic and financial analysis needs to treat the Republic as a region within a larger economy rather than as an independent entity.
The implications for the Irish stock market are equally far reaching and point to the likelihood that the Irish exchange will eventually take on the characteristics of a local exchange serving the needs of smaller companies. This process has in fact been in train for several years as an increasing proportion of trade in the larger companies has migrated to the London exchange.
For private investors the results of this increased internationalisation is unambiguously good news. Investment in a much broader range of companies is now possible and greater competition amongst financial services companies is resulting in sharp reductions in transaction costs. This should ultimately enable private investors to achieve better returns and greater diversification from their equity portfolios.
