The comparative buoyancy of the Irish economy and its labour market shines out from several reports just published.
While much of this energy is generated domestically, notably in the services sector and in construction, auguring well for future growth and high employment, the economy is vulnerable to adverse international trends, especially in the United States.
The ESRI's Quarterly Economic Commentary projects growth in real GDP for this year at 5.5 per cent and for the more realistic GNP at 5.1 per cent. They expect the equivalent figures next year will be 5.0 and 4.6 per cent. Employment growth is put at 2.6 per cent this year and 2 per cent in 2005. Inflation and wage growth are expected to be 2.1 and 4.4 per cent respectively. The public finances and external figures are strong.
Ireland is now very much part of the international economy, subject to the ebbs and flows of activity in its major markets. Most attention in this report is devoted to the US budgetary and trade imbalances. They are unsustainable in the longer term and must be corrected by policy adjustment or market forces, as President Bush acknowledged yesterday in Washington. In the meantime US growth stimulates the rest of the world, with the euro zone and Asian economies slow to take up the slack from any US adjustment. This burgeoning mismatch of capacity will be a more prominent theme of economic commentary next year.
The ESRI report says a potential decline in house completions is the major domestic uncertainty facing the economy. Some 80,000 units were completed this year (many more of them second homes than social housing). This accounts for 30 per cent of investment volumes, adding one percentage point to overall growth this year and last. Demand for housing is driven by real disposable incomes and interest rates, as well as by underlying demographic factors which imply a much lower rate of completions. Some 200,000 construction jobs are involved; if activity in the sector falls off, there will be substantial effects on employment, affecting emigration and immigration. These deserve as much attention as the level of property prices.
FÁS's labour market review for 2004 fills out the detail involved in the construction sector and other dynamic components of the economy. Of the 1.834 million people employed in the second quarter of last year some 830,000 worked in the market services area. Immigration on a large scale will be needed to meet demand. As FÁS convincingly argues, more planning for the skills involved is now urgently required.