Economic forecasting in the Republic is a very inexact science. Irish economists work with very out-of-date statistics and with considerable gaps in knowledge about key areas, such as the balance sheets of the household and corporate sectors. The majority of forecasts for growth in the Irish economy in 2001 are in the region of 6 per cent to 8 per cent.

The Organisation for Economic Co-operation and Development (OECD) report on the Irish economy, published last Monday, envisages that real GDP will rise by 7.8 per cent in both 2001 and 2002. The Central Bank forecast in its recent annual report that Irish real GDP would increase by about 6.5 per cent this year. Between these two forecasts lie a range of other forecasts for the growth in real GDP in 2001, with the European Commission at 7.5 per cent, the Economic and Social Research Institute at 6.7 per cent and AIB Group Treasury at about 7 per cent. There is a consensus, therefore, that the rate of economic growth will moderate from last year's exceptionally strong performance, when real GDP rose by an estimated 11 per cent.

If the growth in the Irish economy turns out to be about 7 per cent in 2001, it will represent the slowest rate of expansion, in terms of GDP, since 1994.

All forecasts for the Irish economy in 2001 assume that the growth in the volume of exports of goods and services will slow sharply compared with 2000. Last year, it is estimated that the volume of exports rose by up to 20 per cent. On the goods front, exports of office and data-processing equipment rose by more than 28 per cent in value terms.

On the services side, inward tourism spending in the Republic increased by 12 per cent. Exports of computer services, which account for 7 per cent of total exports, expanded by 12.5 per cent in value terms last year. Volume estimates for this category of exports are unknown but they could have contributed 1 percentage point to the overall growth in real GDP of 11 per cent in 2000.

With the downturn in the IT sector, and the negative effects of BSE and foot-and-mouth on agricultural and tourism earnings, it is reasonable to assume that Irish exports will suffer in 2001 compared with 2000. Furthermore, weaker economic growth in the Republic's main trading partners should lead to a scaling back in the volume of Irish manufactured exports.

Economists are much more sanguine about the prospects for growth in Irish domestic demand in 2001. Most forecasts envisage that growth in consumer spending and fixed investment will continue at a healthy rate. The OECD expects that final domestic demand in the Republic will grow by 8.2 per cent in real terms in 2001, down only marginally on last year's estimated growth of 8.7 per cent. We expect greater moderation in these components of GDP to a combined 7 per cent in 2001.

The available data on Irish domestic demand in 2001 do not as yet support the consensus view of a relatively robust performance this year. Retail sales and housing registrations point to a sharp slowdown in the first quarter compared with a year ago.

Retail sales rose by 4.2 per cent year-on-year in the first two months, pulled down by the fall in car sales. Excluding garage sales, other sales were up 9.5 per cent in real terms. The Central Statistics Office will publish figures for March today.

Consumer spending was undoubtedly affected in the first quarter by the BSE/foot-and-mouth problems. The indication is, however, that activity has picked up in the second quarter. The tax reliefs in the Budget and the fall in mortgage rates, with the prospect of more to come, should boost consumer spending in the months ahead.

The main uncertainty about the magnitude of Irish economic growth in 2001 relates to the export side. Exports account for more than 90 per cent of GDP. As a result, variations in the growth in exports can have a significant effect on the growth in real GDP. Most forecasts expect that the growth in total exports will be halved in 2001 compared with 2000. Data on exports and manufacturing output in the early months of 2001 suggest otherwise. Manufacturing output, the bulk of which is exported, rose by more than 30 per cent annually in the first quarter.

Over the past few years, the ratio of growth in total demand (domestic demand plus exports) to the growth in imports has averaged about 1.3. On this basis, every 1 per cent deviation in export volume growth from the projected 10 per cent growth in 2001 would affect the growth in real GDP by about 0.5 per cent. If, therefore, the export side outperforms current forecasts, the growth in real GDP could once again exceed expectations.

John Beggs is chief economist of AIB Group Treasury.