Acceleration is replacing moderation as debt rises, writes Marc Coleman, Economics Editor

Stop the economy, I want to get off. Inflation has accelerated from 2.5 to 3.3 per cent in the space of two short months, while Central Bank statistics show that credit is continuing to expand by around 30 per cent.

With yesterday's Central Statistics Office (CSO) numbers showing economic growth accelerating from 4 per cent in 2004, to over 5 per cent last year - and possibly heading for 6 per cent this year - things are getting scary.

Like a funfair ride, a boom should be characterised by balanced motion, last for a predictable duration and, someone, somewhere, should be in control of the situation.

With these characteristics, the ride is scary, but fun. Without them, it's just scary.

For anyone riding the back of this Celtic Tiger, yesterday's National Accounts statistics should create a minor laundry problem. Acceleration has replaced moderation. Growth is unsteady and unbalanced. And nobody, but nobody, appears to be in control.

The figures don't lie. Gross national product (GNP) - a measure of goods and services produced by domestically owned factors - excludes most of what goes on in multinationals like Intel, but does include what Irish companies do abroad.

A debt-fuelled expansion in consumption and building pushed GNP to grow last year by 5.4 per cent, up from 4 per cent in 2004.

Gross domestic product (GDP), which measures economic output produced in the State, regardless of ownership, grew by 4.7 per cent, up from 4.5 per cent.

The acceleration in GNP to its fastest growth rate since 2000 is the main story. Compared with 2000, the momentum in the economy 2005 is less balanced, more domestically driven and more dependent upon credit.

In 2000, personal consumption was growing by 8.6 per cent, even more strongly than in 2005. But it was complemented by a strong contribution to growth from net exports, which grew by 2 per cent.

Even after five years of boom, Ireland in 2000 was still able to generate personal consumption growth on the basis not just of growth in borrowing, but in growth in real incomes in a competitive economy. Investment growth in 2000 was strong, but at 7 per cent, not excessively dominant.

In 2005, investment grew by 13 per cent on the back of strong construction and the purchase of machinery and equipment, much of which relates to demand for transport equipment.

If anything, the real surprise of the 2005 National Accounts are not that growth accelerated so much.

With roughly €60 billion worth of credit being pumped into the economy, we might ask why it did not expand by more.

The answer to that question is found on the external side of our economy. Exports grew by just 1.8 per cent in the year. Import growth remains high at 4.6 per cent. For the second successive year, our external economy contracted.

The piddling export growth that did occur was not only driven by the multinational sector, but by one subsector of it. A surge in chemical exports in the second half of last year pushed export growth from -0.6 per cent to 4.1 per cent.

Without it, our external performance would have been even worse.

Incidentally, the year 2005 saw the largest current account deficit in the history of the state and - as a percentage of GNP - the largest since 1986.

But the scariest part of this ride is the lack of control. Just when the economy least needs any stimulus, it is getting it most. SSIA funds have been deliberately timed to enter the economy this year, at the height of the boom.

Public spending will rise by 13 per cent this year and by an equivalent amount next year. Financial institutions are heaping credit upon borrowers like there's no tomorrow.

As this is happening, Europe's most significant economy is finally showing signs of emerging from the doldrums. Germany's benchmark Ifo index last month recorded its highest reading in 15 years, coming in well ahead of analyst expectations.

The rise was the fourth in succession and will make the European Central Bank less worried about slowing growth and more likely to raise interest rates.

Analysts such as Rossa White of Davy stockbrokers and Dermot O'Leary of Goodbody Stockbrokers predict economic growth to remain strong and domestically driven.

The man responsible for setting policy, Minister for Finance Brian Cowen, is also in confident mood, declaring yesterday that Ireland's economy will match last year's growth in 2006, despite rising interest rates.

Mr Cowen said that he expected GDP growth of 4.7 per cent this year, in line with last year's figure, thanks to strong consumer spending.

"Domestic demand is an important factor, consumer spend is up," he told a conference in Dublin, while acknowledging that inflation would rise to 2.7 per cent.

As Dermot O'Leary of Goodbody says: "It is very much likely that the domestic sectors can propel the economy forward in the short term."

It sounds positive, but there is a corollary. When the short term is over, what other sectors can drive growth? With a credit binge eroding competitiveness even further, we needn't pin our hopes on the export sector.

The Government may just decide to do what it thinks the private sector no longer can. Now that's really scary.