Exchequer figures will attest to a recovering economy, writes Cliff Taylor, Economics Editor.
Exchequer figures today will confirm that things are looking up for Charlie McCreevy. While many of his EU colleagues gathered in Punchestown are struggling to keep budget deficits in check, borrowing here remains low and the budget targets look achievable.
The relatively buoyant state of the Irish Exchequer finances reflects the overall position of the economy. A string of forecasts and figures this week confirmed that growth picked up in the final quarter of last year and is likely to continue into this year.
It would be overstating it to say that the Celtic Tiger has come back, but in comparison to the rest of Europe, the Irish economy has weathered the downturn well and looks set for steady economic growth in the 3-4 per cent range this year. It may be some way off the 8-10 per cent growth of the boom period, but it looks healthy when compared with the rest of Europe. With average EU growth likely to come in at 1.5-2 per cent this year, growth here looks set to be approximately twice the EU average.
Economists are satisfied that confidence is returning to the Irish economy, but in the continental EU, confidence remains decidedly lacklustre, a point highlighted recently by both the European Central Bank and the EU Commission.
So what did this week's batch of data and forecasts tell us about the Irish economy? First, the national accounts figures confirmed that the economy picked up in the final quarter. GNP growth was running at an annual rate of 5.5 per cent in the final quarter of 2003 and while too much store should not be placed on the quarterly data - which can be volatile - this was a clear recovery from the 0.9 per cent rate in the first quarter. The economy pretty much stagnated for much of 2002 and into early 2003, but growth resumed in the second half in tandem with an international recovery.
The ESRI, in its quarterly commentary, predicted that growth would accelerate gradually this year and next, and would be well above 4 per cent by next year.
Just as importantly, forecasters believe that growth will be better balanced this year, with a recovery in consumer spending, investment and exports moving the economy back onto a sustainable growth path. Davy stockbrokers, for long the leading "bear" on the economy, has predicted the return of the "feel-good" factor this year. Mortgage borrowing figures published this week suggest that the broker is correct, at least in regard to the property market. Mortgage lending has grown by an extraordinary 26.1 per cent over the past year to reach €56 billion. Over the past two years the rise has been 60 per cent plus - or some €21.5 billion in cash terms. Confirming the increase in confidence, overall credit growth has also accelerated.
The rise in mortgage lending, in particular, is now defying economic gravity and poses a vulnerability in our economy if anything does "go wrong". For the moment, banks and their borrowers will be reassured by low interest rates and stable growth, but the more house prices and borrowing surge ahead, the greater the future risk.
The strength of the property market will be reflected in today's tax figures. Stamp duty receipts have been running well ahead of target, as house prices continue to increase and the property market remains active. And sales of investment properties - and perhaps shares following the stock market gains - may also be boosting capital gains receipts, although timing factors may also have an influence following a change in payment dates for this tax. Corporation tax is also strong, reflecting a pick-up in profitability.
The main focus of today's figures will be on the key income tax and VAT receipts, which were running just on - or slightly behind - target in the first two months. If economic growth really is gathering pace, then these two categories should be performing solidly.
The one concern for the Department would be if the tax figures were being driven by unsustainable housing market froth, rather than by solid economic growth. And this is reflected in wider questions about the economy.
Economic forecasters are unanimous in saying that recovery is well under way - but many industry figures complain that conditions are difficult. While some of this may be positioning for the pay talks now in process, industrial employment figures out this week show an 11,000 drop in manufacturing jobs in the year to December. While the shake- out slowed markedly in the final quarter, it is clear that tough markets and the strength of the euro led to difficulties for many companies.
In particular, some of the big electronic and chemical multinationals appear to have gone through a difficult period, shedding jobs and suffering from falling production levels. Recent industrial production figures showed that output growth in traditional industry at 10.4 per cent in the year to January was actually outstripping the 7.7 per cent increase in the formerly high-flying modern sector.
Difficulties in parts of the economy and the uncertain international climate mean that continued recovery here cannot be taken for granted, and is likely to be gradual. If things go well the ESRI forecast of growth moving back to its potential of 4 per cent plus next year would be a good outcome; if not we could be muddling along at growth of around 3 per cent.
Over the past couple of years the Irish economy has survived remarkably well. However, the huge structural changes now under way in the world economy linked to factors such as the rise of China, the "offshoring" of jobs to lower cost locations and the enlargement of the EU, mean that sterner tests lie ahead.
