Economies are, by their nature, dynamic and constantly changing organisms affected by the individual decisions of people all over the world. The Irish economy has altered more than most in recent years. The growth of our Celtic Tiger economy has been influenced by a wide range of factors.
During the past four years the Irish economy recorded much stronger growth rates than usual, averaging 8 to 9 per cent of GDP a year. During the same period, the world's major economies have been growing at a mere 2.5 per cent a year.
According to experts, the past decade has seen our economy expand at roughly twice the EU average.
While there are myriad reasons for this economic surge, according to Mr Dermot O'Brien of NCB Stockbrokers, several main factors can be easily identified.
One is the substantial investment by big multinationals, mainly electronics and chemical companies, who export most of what they produce. "Indigenous industry has enjoyed a more modest growth," he says, "but it has remained fairly solid." Another piece of the jigsaw can be added by the series of national pay agreements which controlled wage costs and contributed to a competitive, and therefore, more attractive, business environment. Perhaps the largest single contributor to growth has been the domestic demand in the economy, with people spending more than ever before.
"Consumer spending here has been running at quite pacy rates due largely to the Government's budget policy. A series of income tax reform measures, which means more money in wage packets, was fundamental to that," says Mr O'Brien.
Equally fundamental to this rise in spending has been the issue of demographic change. The "baby boom" of the 1970s and early 1980s - when there were big increases in the number of births - has seen the creation of a large workforce which, since the beginning of this decade, has had a significant influence on the economy.
"The current crop of baby boomers are in their twenties. They left school later, with better qualifications and are, therefore, a more productive labour force," says Mr John FitzGerald of the Economic and Social Research Institute (ESRI). The 18 year olds of today are at the peak of this boom, he says, and will help maintain economic growth when they join the work force.
In demographic terms, the increased participation of women, who are returning to, or remaining in, the workforce in bigger numbers has also boosted growth. With more people available to work - the labour force in the 1990s has increased by 2 per cent each year - it allows the economy to grow. "There was a similar knock-on effect of purchasing in the 1980s when the economy grew reasonably well. But it didn't feel like it because any extra we received went to paying off our debts," says Mr FitzGerald.
This time, with better wage benefits, a reduction in taxes and far more people employed we get to keep fruits of the growth. Moreover, growth translates into jobs. Unemployment, currently at 9 per cent, is the lowest ever as spending creates more jobs in areas like retailing, legal business, entertainment, catering and the hotel industry.
In Ireland, we have what is termed an open economy. Currently, 80 per cent of our GDP is accounted for in exports. The UK is our largest market but in recent years there has been considerable diversification. Twenty years ago almost 50 per cent of our exports went to the UK. This figure currently stands at 24.8 per cent.
The balance of trade is an important factor in a healthy economy, explains Ms Dearbhalla Balfe, economic advisor with An Bord Trachtala, The Trade Board.
"Our exports are greater than our imports and we have had a trade surplus here since 1985. That is a healthy situation. The average growth in exports for the past three years was 13 per cent," she says. Inflation - the annual percentage rise in prices from one year to the next - has considerable impact on economic growth.
Being a trade dependant country, international inflation and exchange rates have a big part to play in the success or failure of an economy. With the rise of sterling this year, the price of our imports from Britain has risen. The pound has also fallen against other currencies.
While our inflation rate is currently one of the lowest in Europe ( 1.5 per cent), the resulting price increases could have an negative inflationary impact. Another development which will undoubtedly impact on our economy is the advent of European Monetary Union (EMU). "Nobody really knows what is going to happen," says Mr O'Brien of NCB. "What it will mean straight away, though, is a stable exchange rate position for 40 per cent of our trade."
While EMU is expected to bring no major plusses to our economy, neither are there any major identifiable losses. "We need to see increased flexibility in preparing for EMU," says Mr FitzGerald. "Firms should cover themselves for exchange rate shocks. If sterling were to collapse, we may have to share some of the pain through reduced wage rates."
Unknown quantities apart, the future looks bright for the Irish economy and the current levels of growth are expected to last well into the middle of the next decade. During this time, say the experts, we have the potential to grow at a relatively strong pace.
"We have the building blocks in place," says Mr O'Brien. "Only international recession or misjudged government policy could scupper our success." However, even with a roaring Celtic Tiger, as a country we are still deeply in debt. End of year figures from the National Management Treasury Agency show that, by the end of 1997, it was just over £30 billion. Despite this, in terms of our debt/GDP ratio which stands at 67 per cent, we are still less in debt than the average EU country.
