Economic growth this year will be only half as fast as in 2007, the Central Bank forecasts in its quarterly bulletin, yesterday. The bank projects that the pace of economic growth will decelerate from 5.1 per cent in 2007 to 2.6 per cent this year. Yet, despite the forecast economic slowdown, the Central Bank's assessment of the State's economic prospects is not without an element of optimism.
The bank points out that the economy registered a strong performance in 2007, with the growth rate exceeding 5 per cent. In particular, exports surpassed all expectations, with the volume of goods and services sold abroad increasing by 6.9 per cent. As a result, the bank estimates that Ireland increased its share of world trade in 2007 for the first time in many years.
This year, despite the slowdown, Ireland's forecast growth rate stands up well when compared against the prospective performance of neighbouring economies. For 2008, Ireland's projected growth rate in real Gross National Product, at 2.6 per cent, exceeds the expected growth rates for the euro area, Britain, and the US.
Most importantly of all, the Central Bank foresees light at the end of the slowdown. It points out that, once the correction in the housing market is completed, the economy can look forward to a modest pick-up in economic performance. In consequence, it foresees growth recovering towards 4 per cent in 2009 and subsequent years.
Striking such a note of optimism is salutary at the present time. With international financial markets embroiled in turmoil, stock markets plagued by volatility and the global economy clouded in uncertainty, it is important to recognise that the Irish economy has a sound and solid future in the years ahead.
The boom of the last 15 years created a wave of irrational exuberance. Too many houses were built. Too much cash was spent. Too many prices were raised excessively. Too much money was borrowed. The culture of conspicuous consumption engendered by the boom was unsustainable.
Now, rationality is returning. In this process - painful in itself - it is important to differentiate between a temporary correction and a prolonged downturn. The slowdown that the economy is experiencing is not the first step on the road to a depression. The reassurance by the Central Bank that the economy can return to relatively strong growth by 2009 is therefore timely.
Reassurance, however, should not invite complacency. A key element in reviving growth lies in regaining competitiveness. The full effects of the deterioration in Irish competitiveness in recent years have yet to be felt in lost export sales and the migration of companies from Ireland to lower cost locations. The Government needs to respond by developing a coherent strategy on restoring competitiveness, embracing pay, productivity, foreign investment and diversifying exports. This is the new economic agenda.
