The economy slowed sharply last year and performed particularly weakly during the final quarter, according to new figures from the Central Statistics Office. However they show strong growth in the multinational sector, highlighting an increasingly two-speed economy.

The first estimates for 2002 show Gross National Product growth of just 0.6 per cent, down from 4.6 per cent the previous year. Special factors depressed the 2002 GNP figure, however.

Gross Domestic Product, calculated before adjustment for multinational profit repatriations, rose by 6.3 per cent, leaving an unusually large gap between the two main growth measures. With special factors affecting both figures, the 2.6 per cent rise in personal consumption may more accurately reflect economic performance.

Showing a difficult end to the year, annual GNP actually fell by 2.3 per cent during the final quarter. While the last fall in GNP was in the mid-1980s, before quarterly figures were produced, the CSO warns that once-off factors affecting the comparison of financial flows depressed the latest figure significantly. A previous estimate that GNP fell by 0.3 per cent during the third quarter of 2002 has been revised to show a small 0.2 per cent increase.

The further evidence of a slowing domestic economy comes ahead of next Tuesday's special Cabinet meeting to discuss competitiveness. In an interview in today's Business This Week, the Tánaiste, Ms Harney, says that the choice facing the Republic is to link wage growth to productivity as a way of achieving a convergence in our inflation performance with our trading partners, or have a more painful process of job losses. To build competitiveness she is calling for an increase in Government borrowing to pay for key infrastructure projects, an essential move to remain attractive to inward investment.

The CSO data show that strong multinational profits - particularly in pharmaceuticals - are pushing up GDP growth, which was slightly higher at 6.3 per cent in 2002 than the 5.7 per cent for 2001. GDP growth in the final quarter was 6.4 per cent.

However the domestic economy is performing much less buoyantly. Agriculture had a poor year, with output down 4.9 per cent and a 15 per cent collapse in the last quarter, due partly to bad weather. Consumer spending, exports and imports all weakened significantly as the year went on, indicating a slowing economy.

While GDP growth was boosted by multinational profits - meaning it overstates economic performance - these profits are excluded when measuring GNP growth. However, the CSO warns that GNP growth last year was depressed by falling profits earned overseas by Irish companies and by IFSC financial flows.

These factors knocked two percentage points off GNP growth and excluding them would thus boost growth last year to around 2.5 per cent, which may more accurately reflect the performance of the domestic economy.

Following the figures Ulster Bank and IIB economists are forecasting GNP growth of 2.5 per cent this year while Mr Jim Power of Friends First expects a more modest 1.2 per cent rise.

Harney interview, page 4; Editorial comment, page 19, main paper