ECONOMIC GROWTH in the Republic is losing momentum. The annual rate of growth in real Gross National Product (GNP) decelerated to 1.2 per cent in the last quarter of 2007. And the country recorded its biggest-ever balance of payments deficit - €9 billion - in cash terms last year, according to data released by the Central Statistics Office.
The pace of activity growth in the final three months of last year was dragged down principally by the contraction in new house building. In the last quarter of 2007, real expenditure on new housing was 22.3 per cent lower than a year earlier. Overall, real fixed investment spending in the fourth quarter of 2007 was 12.3 per cent below the levels seen in the final quarter of 2006.
While growth in the economy slowed during the final months of 2007, the prospects for the global economy have weakened since last December, the Organisation for Economic Co-Operation and Development (OECD) said yesterday.
The economic think-tank is now forecasting that the US economy will exhibit minimal growth in the first quarter of this year before standing still in the second quarter. "The US economy is essentially moving sideways, if not contracting outright", Jorgen Elmeskov of the OECD said yesterday.
The outlook for the euro area is somewhat better than for the US, with the OECD now forecasting growth of 0.5 per cent in the first quarter of 2008, followed by an expansion rate of 0.4 per cent in the second quarter.
The downward revisions to the OECD's economic forecasts are based on three factors. First, the crisis in financial markets is spilling over into the real economy of production and employment.
Second, the global housing cycle has turned downwards and this is subtracting from growth. Third, soaring energy and food prices are squeezing households' real incomes, forcing them to economise on other purchases.
The annual growth rates recorded for the Republic during 2007 were broadly in line with forecasts. Real Gross Domestic Product (GDP) increased by 5.3 per cent during 2007, while real GNP - which excludes the profits of multinational companies - rose by 4.5 per cent.
However, these annual figures mask a steady deterioration in the rate of economic expansion as the year progressed. Year on year, real GDP growth decelerated from 8.3 per cent in the first quarter of 2007 to 3.5 per cent in the final quarter. Similarly, the pace of GNP growth slowed from 7.1 per cent in the first quarter to 1.2 per cent in the fourth quarter.
The balance of payments deficit on the current account widened by €2 billion to reach €9.27 billion in 2007, its highest-ever level in absolute terms. While merchandise exports marked time last year, exports of services put in a strong performance during 2007, increasing by 17.7 per cent to €64.8 billion. Services exports have been rising rapidly in recent years and now account for 43 per cent of all Irish exports. Total exports exceeded total imports by almost €19 billion in 2007.
However, net direct investment income of more than €26 billion flowed out of the State last year, mostly in the form of repatriated profits. Additionally, the Republic is now receiving less and contributing more to the EU.
Together with the cash sent home by immigrants in Ireland, net income transferred to the rest of the world has now reached €1.3 billion. Thus has a trade surplus of €19 billion been transformed into a balance of payments deficit of more than €9 billion.
