While the global and Irish stock markets continue to suffer from nerves associated with rising interest rates, the latest data on the economy continue to point the way towards ongoing economic buoyancy.
The ESRI's very bullish outlook for the economy out to 2005 and beyond, certainly received some support from the results of the most recent Quarterly Household Survey.
The survey period covered one month either side of April 1999 and showed that employment grew by almost 100,000 over the year. This is equivalent to a rise of 6.4 per cent in the workforce and is a clear indication that the economy continues to power ahead. The source of these additional workers makes for interesting reading and provides clues as to the sustainability of the Irish economic boom.
Clearly the most obvious source of supply of labour was the pool of unemployed workers. Unemployment fell by 30,000 over the period and brings the unemployment level down to just under 100,000, equivalent to an unemployment rate of 5.7 per cent. While there is still scope for this rate to decline further, it is clear this now represents quite a small pool of available labour.
Another source of new workers comes from immigration where a net 19,000 workers entered the State in the 12 months to April 1999. This means that over the past four years, the total net inflow of immigrant workers was 65,000. Not surprisingly, over half of these immigrants were Irish nationals enticed by increased job opportunities. The final source of labour supply comes from greater worker participation from groups such as married women, students and retired people re-entering the labour force. The Labour Force survey showed that 1.249 million people over 15 years of age were classed as not in the workforce in April 1998, but this had declined by 22,000 to 1.227 million by April 1999. Therefore, increased participation rates and immigration have been key factors in enabling the economy to grow at rates as high as 10 per cent per annum.
If the ESRI's long-term predictions are to be fulfilled, it is clear that at least a significant proportion of new labour market entrants will have to come from abroad. It is not surprising that many foreign commentators and analysts who have studied the Republic's economy are now taking the view that labour shortages and infrastructural bottlenecks will soon cause the current boom to collapse. This view, which has gained ground internationally, would seem to be one of the key factors which has caused the Irish equity market to under-perform by so much during 1999.
However, a key advantage that the economy has is that previous decades of high emigration mean there is a pool of skilled workers who will return - if there are sufficient job opportunities. Therefore, the pool of workers potentially available to the economy could well be much larger than is assumed by the more pessimistic analysts.
While housing shortages and associated high prices could act to deter immigrants, it should be possible to address these problems over the medium term. Continued buoyancy in the domestic economy, and the likelihood that it is sustainable, is unequivocal good news for Irish-quoted companies. Stock market investors who have bought into the Irish economic success story must be feeling very frustrated as share prices continued to languish at the bottom of international performance tables.
Nevertheless, if the medium-term forecasts of institutions such as the ESRI prove to be even close to the eventual outcome, then the current weakness in the Irish stock market represents an excellent long-term investment opportunity.
