There has been much debate recently over whether 1998 will prove to have been the peak of the boom or whether the economy is still continuing to expand, as remarkable as that would be.
There is no doubt that the economy is still growing quickly. But so far there is little real consensus about what actually happened last year, never mind the prospects for this year. And last week two of the major financial institutions came up with very different predictions.
Dr Dan McLaughlin, chief economist at ABN Amro, has pencilled in growth of 10 per cent this year which he calculates is around the same level as last. AIB's Mr Oliver Mangan on the other hand sees economic growth slowing to, a still remarkable, 7 per cent this year from 8.25 per cent last year. The official forecasters are closer to the higher end of estimates. The Central Bank has an official forecast of 8.25 per cent growth in GDP for 1999, while the European Commission is projecting a 9.5 per cent expansion. It is worth noting that both of these forecasts were made before the last cut in interest rates, which can only boost demand here still further.
Both economists agree that domestic demand is still very strong and that exports are weakening. However, they differ on the extent to which both of these will impact on the figures.
Dr McLaughlin points out that there are few signs of any slowdown. Total tax receipts, which are the most timely indicator of current activity, were up 13.5 per cent at the end of March. VAT was up 16 per cent, indicating the strength of consumer spending and income tax receipts were 12 per cent higher than a year earlier pointing to continuing strong employment growth. Car sales are another good indicator of consumer demand and by the end of March sales were up 28 per cent on the previous year, which was itself a record. Retail sales are still very strong, although the data is only available to the end of January.
The only place where Dr McLaughlin sees a slowdown is in export growth. No figures are yet available but the performance this year is likely to slip, given the 30 per cent growth rates recorded in early 1998.
It is this slowdown in the export performance of the economy which is behind Mr Mangan's lower prediction of economic growth this year. He notes that imports of services surged in the final months of 1998 and as a result he has scaled back last year's GDP growth forecast to 8.75 per cent, compared with Dr McLaughlin's forecast of 10.8 per cent last year.
Mr Mangan argues that the economy will slow still further this year largely because of the external environment. He notes that GDP growth in Britain is set to slow to close to 1 per cent from an average of 3.5 per cent from 1994 to 1998, while the euro zone economy is expected to expand by just 2 per cent.
Exports represent a huge contribution to the overall performance of the economy; every 1 per cent fall in the export growth rate has an almost equivalent impact on the GDP growth figures, Mr Mangan says. He is predicting that export growth will fall back from 21 per cent last year to just 13 per cent growth. On top of that, he argues that industrial production is falling off, as is manufacturing output.
When these factors are combined with a likely slowdown in foreign direct investment he argues that growth itself will slow markedly.
In contrast, Dr McLaughlin believes that strong domestic demand is still likely to more than offset any slowdown in export growth.
The large cuts in mortgage rates have fed through to significant extra money in many people's pockets and confidence is so high and saving so low that most of this is likely to be spent. Mortgage variable rates are now around 5.2 per cent from 7.5 per cent last summer. This equates to a £1,000 (€1,270) saving a year on a £75,000 mortgage.
Currency weakness is acting as a significant stimulus to demand. The euro has weakened by almost 10 per cent against the dollar and sterling since its inception in January. This has a large impact on the economy, as 80 per cent of Irish imports are sourced from outside the euro zone, while only 40 per cent of exports go to euro members.
The Central Bank no longer publishes the trade weighted index for the pound, but according to the Bank of England's Irish pound index, it has fallen 4.5 per cent since the start of the year.
According to Dr McLaughlin that is the equivalent of 2.5 percentage points off interest rates, in terms of its effects on the economy.
Both Dr McLaughlin and Mr Mangan point out that wage growth will deliver another boost to demand. Wages increased by 6 per cent last year and there is little reason to believe that they will not increase by a similar amount again this year.
Whatever the actual outcome proves to be, one thing is clear - there is still no sign of any sort of sharp economic slowdown in the immediate future.
