Economics: Just when you thought it had sloped off forever into the jungle, economists have reported fresh sightings of the Celtic Tiger. Dan McLaughlin at Bank of Ireland has dubbed it "Tiger 2" and said that the economy can grow at 6.5 per cent per annum over the next five years and a number of other forecasters are almost as bullish.
This week's "budget giveaway" headlines will reinforce the impression that the good times are rolling again. In the Department of Finance "champagne Charlie" (who briefly transformed into Mac the Knife in the past two years) has been replaced by Boom Time Brian. Normal tiger transmission, it seems , has been resumed.
Your curmudgeonly correspondent doesn't think it's that simple. This is not to take a dim view of the outlook. The economy has come through the last couple of years with extraordinary resilience. On any reasonable expectation, unemployment should have jumped to well over 5 per cent during the difficult 2001-2002 period , but the jobs market held in. Now growth has resumed, unemployment is on the decline and confidence is returning. Once the international economy can remain healthy, the outlook for Ireland is good.
But that doesn't mark the return of the stripey beast, at least not in my book. This is more than a semantic argument; if the boom times really were rolling again, it would have implications for economic and budget policy which are different from those springing from the solid if unspectacular outlook we are facing.
The Tiger period is best understood as a catch-up phase. The Irish economy had suffered from years of underperformance and growth. A stabilisation of domestic conditions, long-term trends in education, demographic factors and a favourable international picture combined to allow our economy to enter a period of extraordinary growth, with output growing 8-10 per cent a year. And catch up we did, with living standards now at or above the EU average.
What is happening now is fundamentally different. The catch-up is complete. We are now a high-cost economy, with relatively few spare resources and severe congestion problems in some areas. If economic growth goes back to the 8-10 per cent range, then the economy would probably burst.
Not only is the extent of growth going to be different, its nature is as well. The boom period saw an extraordinary surge in pretty much all parts of the economy. Growth has now picked up nicely, but much of the "froth" is driven by the housing boom.
The latest CSO figures showed that the economy was growing at an annual rate of 4.2 per cent in the second quarter of this year. However, IIB economist Austin Hughes has calculated that subtracting out the housing sector, the rest of the economy grew by around 3 per cent. Even this "housing-adjusted" rate is well above the EU norm, but its not spectacular.
Much the same is reflected in the tax figures for the first half. Two of the big overperforming sectors - VAT and stamp duty - are being driven by the housing boom. Elsewhere the figures are generally healthy - for example underlying income taxes are probably running 9 per cent up on last year.
But the kind of exchequer bonanzas generated during the boom years are not on their way back. Brian Cowen's Budgetary position will allow him to introduce new tax and spending measures probably somewhere towards the top end of a €1 billion to €1.5 billion range. At the peak of the boom, his predecessor was able to introduce Budgets with tax packages alone worth €1 billion plus each year and to allocate billions extra in spending, while still planning for a substantial Budget surplus. It was good while it lasted. But more normal growth rates have left us with a less exciting, if still favourable, budgetary picture.
What of the outlook? The economy has certainly picked up momentum, but many sectors are growing steadily rather than spectacularly. Exporters have benefited from the international upturn and industrial production is on the up, though the trend is choppy and some sectors are clearly facing competitive pressures. Many areas of the the service sector, on the other hand, are clearly on the upswing
Consumers are spending again - on cars in particular, as well as houses and home improvements - but in overall terms the recovery in this area has still to gather full steam. Investment has certainly recovered from the lows of 2001/2002, though much of the bounce in the first half of this year is accounted for by Ryanair plane purchases and by house construction.
Can the recovery gather momentum next year? Much will depend on what happens internationally, which is little surprise given the extraordinarily open nature of our economy. The ESRI has made the point that the international economic outlook is better now than for many years. However oil prices are clearly now a threat to the outlook and the enormous size of the US budget and current accounts deficits is a continued source of succour to the pessimists.
The IMF has predicted that world growth might slow a bit next year to a little over 4 per cent. This would still provide a favourable outlook for Ireland, though if growth is easing internationally it does raise the question: where is the stimulus to Irish growth to come from? If house-building growth finally starts to ease, this will also remove one of the main domestic growth stimulants.
From a "feelgood factor" point of view, next year is more likely to feel like a repeat of this year than a return to the boom and bloom Tiger conditions. Make no mistake, this would be an encouraging outturn, particularly in a world where the whole competitive landscape is being transformed by the rise in economies such as India and China and the enlargement of the EU.
Against this backdrop, if the economy can keep growing at 4 to 5 per cent per annum then we will remain well ahead of the international norm, living standards will continue to rise, unemployment will remain low and the exchequer will have ample resources to hold taxes down and tackle key social priorities.
It could still be pretty good, but it won't be no Tiger.
