Economics/Dan McLaughlin: It is now known that the Irish economy grew by over 6 per cent in the year to the first quarter of 2004, which is strong enough to justify claims that the Celtic Tiger is back.

The recent growth spurt differs from the 1990s in one respect at least, however, in that consumers are not spending as freely as they did in that heady decade, and not only on drink, which appears to have actually fallen of late.

Consumer spending in aggregate has been subdued on a number of measures.

Retail sales grew by just 0.9 per cent in volume terms in 2002, following a flat reading in the previous year, which is far removed from 2000, when spending increased by over 11 per cent.

These figures include car sales and if one excludes motors, spending on the high street has been somewhat firmer, growing by 1.6 per cent in volume terms in 2003, following a similar gain in the previous year, but still well below the annual increases seen in earlier years.

Spending has picked up in 2004, it has to be said - retail sales grew by 2.8 per cent in the year to the first quarter - but are still running at a pace well below the growth rate of the economy as a whole.

The same is true of the broader measure of consumer spending used in the national accounts, which incorporates spending on services and that of Irish holidaymakers abroad in addition to outlays at the Irish retail level.

Personal consumption grew by 2.8 per cent in 2003, according to the Central Statistics Office's recent revised data, but the annual gain slowed to only 2 per cent in the first quarter of 2004, which is not only below the growth in national income but is also below the gain in retail sales, an unusual development implying that spending on services is growing at an even slower pace than spending on goods in the shops.

It is true that household income growth has also slowed relative to the late 1990s, predominantly due to a softer trend in overall employment growth. Job creation in excess of 100,000 per annum was recorded on a number of occasions in the second half of the 1990s but by 2003 this had slowed to around 30,000, dampening the overall growth in household income. The 1990s was also a decade of low inflation but this too gave way to a much less supportive price environment which eroded real income.

Something similar happened on the tax side, where annual reductions in tax rates have given way to effective tax increases and many people have been pushed into the tax net or into the top tax band, which again has had a negative impact on disposable income.

Yet the slowdown in income growth is only part of the story, as the past few years have seen a pronounced rise in the proportion of income saved by Irish households - the savings ratio.

This has risen steadily from around 10 per cent in the millennium year and probably exceeded 12 per cent in 2003 (official figures have yet to be published) which puts Ireland firmly in the Berlin camp when it comes to frugality and a long way from Boston (the US savings ratio is around 2 per cent).

A 1 per cent change in this ratio is the equivalent of €700 million in spending so the upward move in Ireland is significant. Households generally tend to save more in uncertain times, so some upward move might have been expected but interest rates have also been unusually low, which is not conducive to saving.

Moreover, experience elsewhere suggests that housing booms tend to be associated with falling savings, because consumers spend above their income growth by utilising some of their housing wealth. All the more surprising then that the Irish savings ratio is so high, given the longevity of the Irish housing boom.

There is an additional, localised factor, of course, namely SSIAs, which arguably represent the greatest fiscal incentive to save in the history of the world - one euro, courtesy of the Irish taxpayer, for every four saved.

Over €130 million a month currently flows into SSIAs in the banking sector alone, so if one includes the insurance sector the amount outstanding in these accounts probably exceeds €5 billion, and we are almost three years away from final redemption.

Some of these funds may well have found their way into the savings industry anyway, but it would be surprising if the scheme had not boosted savings in the aggregate and therefore reduced current consumption.

The rising mortgage debt burden may also be a factor in reducing consumption relative to income. The annual cost of a new mortgage now accounts for an estimated 30 per cent of average earnings - against 20 per cent a decade earlier - in spite of lower interest rates.

The burden is much lower than 30 per cent for the vast majority of outstanding borrowers of course, but the cost of mortgage repayments for the freshly indebted may well dampen discretionary spending.

The SSIA and mortgage effects will remain as factors boosting savings but consumption spending may well pick up momentum, thanks to stronger employment growth and low inflation.

Dr Dan McLaughlin is chief economist at Bank of Ireland.