While the ESRI forecasts 5.7 per cent growth, low inflation and high employment, this will not bring the same standard of living increase as the 1990s boom, writes John McManus

All the main economic indicators are pointing the right way, according to the latest assessment of the economy by the Economic and Social Research Institute (ESRI). In its spring economic commentary published this morning, the think tank predicts strong economic growth this year and next, coupled with low inflation and high employment.

The only negative note is the usual rider about the strength of the US economy which underpins the current spate of global, if somewhat patchy, growth which in turn drives the export-orientated Irish economy.

The ESRI, however, is sanguine enough, concluding that, on "the balance of probabilities", the US will work its way out of its trade and current account imbalances in an orderly fashion.

Projected economic growth of 5.7 per cent this year and something similar next year may be reminiscent of the sustained boom experienced in the 1990s, but there is a significant difference this time, according to the ESRI.

This turnaround growth is not delivering the same sort of dividend - in terms of an improvement in our living standards - as was experienced in the 1990s.

The ESRI uses real gross national disposable income as a measure of living standards. By its calculations, this grew by an average of 8 per cent a year between 1998 and 2000 before declining to 2.8 per cent from 2001 to 2003. It expects it to rise to 4.5 per cent and 5.8 per cent in 2005 and 2006.

On the basis of its analysis, the institute takes issue with the recent Organisation for Economic Co-operation and Development (OECD) study which concluded that we enjoy the fourth-highest living standards in the OECD.

It argues that the metric used by the OECD - output per capita adjusted for purchasing power - is inappropriate for Ireland given the extent to which our economy is dependent on multinational exporters.

Using the ESRI preferred metric of real gross national disposable income, our ranking falls to around 15th among developed nations, which is still respectable and, most will accept intuitively, more accurate.

The most important thing, according to the ESRI's Danny McCoy is that, whatever metric is employed, Ireland is still moving in the right direction albeit it at a slower rate. The main reason for the decline in the rate of improvement in living standards is the growth in population, argues Mr McCoy, the main author of the spring bulletin.

The economic pie may be growing , but so are the number of people sharing in it - thanks mostly to immigration. As a result, any rise in economic output in per capita terms is diluted. During the 1990s, the population remained relatively static and the growing economy's need for workers was fed from the pool of unemployed and by women entering the workforce for the first time or rejoining it.

But with the economy at something close to full employment, demand for workers now has to be met by immigration, according to the ESRI.

In order to reverse the trend in falling output per worker that this entails, the ESRI argues that the economy must make better use of migrant workers. At present many migrant workers - despite being relatively well-educated - do not work in jobs that utilise their qualifications.

The ESRI believes that if more migrants worked in occupations that utilised their educational abilities, it would increase real gross national disposable income by 1 per cent rather than the 0.4 per cent currently attributed to them.

"If we have the resource coming into the country, it makes sense to utilise it," according to Mr McCoy.

He cited a number of reasons for which migrants were not holding jobs appropriate to their educational qualifications - of which lack of language skills was the most significant.