THE ECONOMY is heading towards a bright future with real economic growth averaging 3.75 per cent annually over the next decade, the Economic and Social Research Institute (ESRI) forecasts in its Medium-Term Review 2008-2015, published today.
Looking further ahead, the ESRI foresees that Ireland will continue to outperform its European neighbours in the growth race in the years to 2025.
As a result, income per head of population in Ireland is projected to come close to 120 per cent of the EU15 average in the years 2020- 2025.
While the economy is set to stutter this year and next, the ESRI foresees a strong economic rebound in 2010, when economic growth is forecast to exceed 5 per cent.
The institute's expectation is based on a pick-up in global economic activity and a consequent increase in the demand for Irish exports.
Even if the global credit crisis lasts longer than anticipated, the Irish economy is sufficiently resilient to bounce back to health once international demand revives, Prof John FitzGerald of the ESRI said yesterday.
The ESRI said the economy had entered a new phase of development. Market services - particularly business and financial services - are gradually replacing manufacturing as the engine of Irish economic growth.
Already, services exports account for 43 per cent of total exports. By 2025, the ESRI projects that market services will account for 60 per cent of net output or value added in the Irish economy and in excess of 70 per cent of all Irish exports.
Business and financial services, which are the fastest-growing components of market services in the Republic, are projected to employ more than 750,000 people, or some 30 per cent of the workforce, by 2025.
Reflecting a moderation of employment growth in the future, the ESRI also anticipates a steep slowdown in net immigration in the years ahead.
Net immigration averaged almost 70,000 in each of the past two years.
The institute forecasts that net inflows of immigrants will decline to 20,000 this year and will average just 11,000 annually between 2010 and 2015.
Despite the downturn in house building over the past year, the ESRI foresees a continuing solid demand for new homes in the years to 2025, due principally to population growth.
Housing completions are forecast to average 48,000 annually between 2010 and 2020.
Economic growth has been decoupled from environmental pressures to a substantial degree over the past 15 years, the ESRI says, primarily because growth has been concentrated in environment-friendly services sectors.
However, while this decoupling is projected to continue, it will not be sufficient to meet the stated targets of environment policy, specifically in the areas of waste and climate change.
In the five-year period 2010-2015, real gross national product (GNP) is forecast to grow at an annual average rate of 3.8 per cent.
Over these years, the ESRI envisages national economic growth being driven by annual productivity growth of 2.5 per cent, labour force growth of 0.9 per cent a year and an increase of 0.3 per cent annually in the employment rate.
However, even with a growth revival, Ireland's prolonged employment boom is over.
The numbers at work are expected to mark time this year and are forecast to increase at a moderate pace thereafter. Over the years 2008 to 2015, additions to employment are projected at 169,000, an average increase of 24,000 or 1.2 per cent annually. As a result of slower jobs growth in the years immediately ahead, the unemployment rate is projected to rise, reaching a peak in 2011.
The unemployment rate - the numbers out of work as a percentage of the labour force - is forecast by the ESRI to increase from 4.5 per cent in 2007 to 6.9 per cent in 2011 before declining gradually to 5.3 per cent by 2015.