Last year, the economy experienced a sharp slowdown. Gross national product (GNP), having risen by more than 10 per cent in 2000, rose by just 5 per cent in 2001. Overall economic activity, bounding along at a double-digit rate at the start of the year, was virtually static by year-end.
This turnaround was eloquent testimony to the speed with which circumstances can change and the extent of the Republic's susceptibility to external shocks.
Of course, it can be argued that this cuts both ways. Just as the experience of 2001 illustrates how dramatically the pace of Irish economic activity can slow, so it is possible that growth could speed up just as spectacularly, perhaps as soon as this year.
Some analysts' forecasts reflect a belief in that proposition. And there are others, especially those who operate in the sheltered sectors of the economy, whose perceptions and expectations have a similar basis.
They believe the recent slowdown is a blip, a temporary aberration that has not derailed the gravy train but caused the driver to apply brief pressure to the brakes.
So are there reasons to be cheerful? Is a robust recovery under way? Is the economy likely to achieve a growth rate in line with potential, widely estimated at 5 to 6 per cent, in the near future?
An obvious place to start, given the economy's openness, is exports. Here such evidence as is currently available is mixed to say the least.
On one hand, the NCB Purchasing Managers' Index and the latest official statistics on merchandise exports and industrial production seem to be telling an upbeat story. Over the first five months of the year, industrial output is estimated to have risen by about 5 per cent year-on-year, while merchandise exports rose by about 6 per cent year-on-year in value terms in the January-April period.
But these are modest growth rates by comparison with what was registered between 1995 and 2000, but even so they almost certainly exaggerate what is happening on the ground, and by a considerable margin.
The growth recorded in the exporting sector of the economy in the early part of 2002 has been extraordinarily heavily concentrated in one sector, namely chemicals, where output in the January-April period is estimated to have risen by 26 per cent year-on-year but where the meaningfulness of such data is especially suspect. Excluding chemicals, it seemed industrial output was still contracting.
The notion that the recovery of exports may be less red-blooded than raw Central Statistics Office (CSO) data suggest is supported by recent IBEC/ESRI surveys.
These show expectations of production and export sales among industrial respondents to have been very volatile since the start of the year, and to have improved only modestly since their nadir in late 2001.
It is also worth pointing out that the most recent survey was taken in early June, pre-dating the latest leg of the sharp declines in the dollar and international equity markets.
These events cannot but have dampened business confidence further and cannot but exert some negative influence on actual exporting performance in the period ahead.
What of domestic demand? Well, as far as fixed investment is concerned, we have limited statistical evidence to go on, but what little is to hand, such as the construction employment series, suggests that activity in the building sector is muted.
The picture regarding consumer spending is also quite downbeat. Here, the evidence from the CSO's retail sales series points to spreading weakness. The latest published data, which is for May, show sales volumes (excluding garages and filling stations) running just 1.3 per cent above their year-earlier level. When garages and filling stations are included, it is estimated that sales volumes are running broadly flat vis-à-vis a year earlier. All this marks a stark contrast with what was happening up to relatively recently: core retail sales rose by 7.5 per cent in 2001 and by almost 9 per cent the previous year.
Why has consumer spending run out of steam? Several influences have been at work, including perhaps the large flow of money into SSIAs in the spring.
It may also be the case that household disposable income growth has slowed down, as looser labour market conditions have brought about a decline in bonus payments and in private-sector wage and salary increases.
What seems certain, however, is that consumer confidence has taken a battering over the past year and this has made consumers less willing to spend. The consumer confidence index published by IIB Bank is running about 30 points below its average value of the 1996-2000 period.
It does not require a degree in economics to figure out why Irish consumers have become less confident. Their sense of security has been increasingly under siege over the past year or so from numerous sources: the rising trend in job losses and unemployment; the sharp deterioration in the state of the public finances and the accompanying threat of tax increases; falling equity markets and pension fund values; and a persistently high inflation rate.
Looking forward, at least over the short term, one cannot be confident that any of these negative influences will abate, except perhaps the high inflation rate.
Taken together with the likely evolution of the international environment - sluggish growth in our main export markets, an appreciating euro, and a bruised and battered US corporate sector - this suggests that a robust recovery in the Irish economy is some distance away. Expectations that we will have returned to a trend growth rate by year-end look a little premature.
Jim O'Leary lectures in economics at NUI Maynooth. He can be contacted at jim.oleary@may.ie
