IRELAND'S "economic miracle" can not last. While he did not put it so bluntly, that was the gist of what the Taoiseach, Mr Bruton, said in a recent speech. He is right.
Part of the reason for the economy's recent strength has been because it has been on the rebound from a previous period of sluggish activity. A flurry of investment has resulted as economic confidence improves. This has boosted short term growth and Gross National Product has grown by 6 to 8 per cent a year over the past couple of years.
With growth in our major markets running at a fraction of this level, it will be impossible to maintain such growth rates over the next four to five years. If the economy performs well, Ireland may continue to outperform the international growth average, based on the fruits of recent investment and strong growth in high technology sectors. But, as the Taoiseach pointed out, much of the recent strong performance has been a kind of "compensation" for a previous period of extremely sluggish activity and some kind of slowdown is inevitable.
It is easy to forget that for much of the 1980s the economy was in the doldrums. During seven years of lean times between 1980 and 1987, the real level of consumer spending stagnated while annual spending on investment fell each year from 1981 to 1988. Growth was driven almost exclusively by exports from the multinational sector, leading to a doubling of overall exports over the seven years. Unfortunately the new jobs from the export success did not offset losses elsewhere and total employment fell.
So, in recent years, the economy has had some ground to make up, particularly as the currency crisis in 1992/93 dealt another blow to confidence.
The growth rates during the seven, mainly bountiful years since 1989 and particularly over the past couple of years have earned Ireland the name of the "Celtic Tiger" among international analysts.
They have been based on a strong recovery on the domestic side of the economy, combined with continued export growth. Consumer spending has picked up strongly and, crucially, investment has been very strong, rising by an estimated 8 to 10 per cent a year over the past few years.
The result has been a much more balanced pattern of economic growth and, also, overall growth rates well ahead of the international average. While our major markets have been struggling to grow at more than 2 per cent, Irish growth has been running at a much faster level, resulting in strong growth in overall employment.
The "catching up" element has come in a number of areas. One is through a surge of investment across all sectors from property to industry. EU funded investment in infrastructure and in training and development has also contributed, although this was also a factor for most of the 1980s. Much of this investment is, by its nature, once off. It will lay the foundation for future economic growth, but the once off boost to demand given by strong growth in investment levels is bound to wane.
Consumers have also been spending freely, although growth here has not been quite as dramatic. Annual rises of 3 to 5 per cent in consumer spending are being driven partly by a general buoyancy and partly by long delayed purchases of items "such as cars and domestic appliances. The property market has its best period of sustained growth in years and new houses have to be furnished. Inevitably, some of these purchases are also once offs.
The implications of slower economic growth depend, of course, on whether the economy can land gently from the crest of the wave and continue to move forward at a steady pace, or whether a more dramatic slowdown is in prospect.
Mr Bruton is right to point out that this must be taken into account in framing new wage demands. But the Government must also realise that its policy choices will be crucial. In particular, slower growth will make the trade off between spending growth and tax reductions more stark, which could pose some interesting dilemmas in framing the 1997 budget.
