The economy ended last year on a strong note. That much is clear from the latest Central Statistics Office figures, which show Gross National Product growth in the final quarter of 2003 running at an annual rate of 5.5 per cent.
Separate figures from the Central Bank indicate that in the property market at least, this growth momentum continued into this year. Overall, the economy has done remarkably well over the past year, but some caution is still needed in looking at the prospects for 2004. And the borrowing trends provide some cause for concern in the medium term.
The economy has proved extremely resilient over the past couple of years against a difficult international backdrop. Growth slowed sharply in 2002 and remained lacklustre early last year, but the economy clearly started to recover in the second half of 2003. The average GNP growth rate last year was a respectable 3.3 per cent, well below the 8 - 10 per cent recorded during the boom years, but very respectable by international standards.
Most economic forecasters believe that growth will accelerate gradually this year, with exporters benefiting from an international pick-up and a revival in consumer spending. This is the most likely outcome, but there are risks. The international recovery is not guaranteed, with the US jobs market slow to respond and the big euro zone economies remaining depressed. Meanwhile competitiveness in Ireland has suffered in recent years and it remains to be seen what impact this will have on our ability to share in the expected international recovery.
Some caution is therefore appropriate. In the short term, as the Economic and Social Research Institute said this week, it is essential that the wage negotiations now underway for the next 18 months of the national agreement take into account the need to safeguard competitiveness and maintain jobs growth. There are also key longer term issues in areas such as infrastructure and competition in the economy which policymakers must deal with; we cannot just sit back and expect that strong growth can be maintained if we do not address these factors.
Consumers and business also need to note the uncertainties in the economic outlook. In particular, trends in the housing market - and related borrowing - are now worrying. A sharp slowdown in house price growth and mortgage lending would have been expected as the economy slowed over the past few years. Borrowers - and those who lend to them - may now be exposing themselves to risks when interest rates rise. IFSRA, the regulator, needs to be sure that assurances it sought on proper lending practices are being followed through.