The Irish economy has again emerged as Europe's top performer despite a marked reduction in the European Commission's forecasts for growth across the region this year.
The Commission yesterday cut its euro zone growth forecast for 1999 to 2.2 per cent from 2.6. But Ireland bucked the trend, with the Commission forecasting growth of some 9.3 per cent in Gross Domestic Product, falling to 8.6 per cent in 2000.
The Central Bank of Ireland, in its Spring Bulletin, was slightly less bullish than the Commission, pencilling GDP growth of 8.25 per cent this year, reflecting a rise of some 6.5 per cent in Gross National Product.
The Commission and the Central Bank also gave mixed forecasts about the next likely cut in interest rates.
On the back of the Commission's reduced growth forecasts, most analysts are expecting the European Central Bank to cut rates, possibly as early as next Thursday.
However, the assistant director general of the Central Bank, Dr Michael Casey, said yesterday he would be a "little bit surprised" if there was a cut.
He pointed to the fall in the value of the euro and said that European growth was being hampered more by structural factors than aggregate demand - which is what a rate cut would boost.
Dr Casey also contended that Commission's cut in the euro zone growth forecast could in no way be thought of as a recession. "It amazes me that anyone can call a slowdown from 2.4 per cent to 2 per cent a recession," he added.
The Commission's 9.3 per cent GDP figure for Ireland is lower than its optimistic prediction, made last year, of 11.9 per cent growth in 1999. But the performance is still way ahead of the rest of Europe. Finland, for which the Commission has reduced its prediction of growth in 1999 from 5.3 per cent to 3.7 per cent, comes next.
The Commission has also cut the Irish inflation rate forecast from 2.5 per cent for 1998 to 2.2 per cent for this year.
The Commission said the Irish economy looked to have surpassed expectations once again in 1998, with real GDP estimated to have increased by almost 12 per cent.
It added: "The pace of expansion is projected to slow only moderately over the period to 2000 as the components of domestic demand in particular continue to grow strongly."
For his part, Dr Casey admitted that the Central Bank may be a little pessimistic in its projections. But it is assuming that savers here will not run down their deposits in
the way Americans have done recently to keep spending. It is also assuming that there will be marked slowdown in exports.
Meanwhile, despite the drop in expected European growth, domestic demand proved remarkably robust to an extent that has not been seen since the beginning of the 1990s, although there was a slowdown in Italy, Finland, Denmark and Britain. Global financial difficulties led to a loss of momentum in the second half of 1998 and faltering exports had a knock-on effect on industrial activity and investment.
Revealing the full details of the Commission's Spring 1999 Forecast yesterday, the ex-Commissioner for Economic and Financial Affairs, Mr Yves Thibault de Silguy, was particularly hopeful about the potential for jobs.
"Growth in the EU economy is generating jobs faster than expected despite the slow-down," he said. "There were 1.7 million new jobs in 1998 and we expect to create a further 2.5 million over the next two years."
But he did acknowledge the severity of the slow-down in the economy during the last year, which, he said, was due to the international financial crisis.
