Strong economic growth, low inflation, budget surpluses and a progressive reduction in the country's debt/GDP ratio are the main features in the Department of Finance's economic outlook which accompanied yesterday's budget.
Gross domestic product is forecast to grow by 8 per cent next year and by around 6.4 per cent in 1999 and 2000. Forecasts of growth in gross national product are 7 per cent next year followed by about 5.3 per cent in 1999-2000.
And despite the forecast continued strong economic growth, the Department of Finance expects inflation to remain virtually non-existent, with consumer prices rising from 1.5 per cent this year to just 2 per cent in each of the three years between 1998 to 2000. Fixed investment is projected to continue to increase, rising by 11.2 per cent next year and by an average of about 7.8 per cent in 19992000.
The prospects for exports are also broadly positive, underpinned by a strengthening of growth in our markets abroad and expanding capacity in the high technology sector, the department said.
It notes that in the five-year period between 1993 and 1997, the economy has grown by almost 40 per cent while the numbers at work have risen by some 220,000.
The Department of Finance, however, expects the growth in employment to slow down somewhat over the next years, and forecasts an additional 52,000 at work this year, a further 48,000 in 1998, 41,000 in 1999 and 33,000 in 2000. The department has warned, however, that shortages of both skilled and unskilled labour is one risk to the generally favourable outlook for the economy.
"If not dealt with, these shortages have the potential to bring the current strong growth phase to a premature end. Tackling the changing needs of the labour market will be one of the most important features of Government policy over the next few years," the department states.
Excessive pay demands and "unrealistic expectations for improvements in a wide range of public services" are other risks to the economic outlook. The department states bluntly: "It is essential that the moderate terms of Partnership 2000 are strictly observed to ensure that inflationary pressures are minimised.
The Department of Finance has also warned about the dramatic rise in house prices over the last two years, both in absolute terms and as a proportion of disposable income. "While the impact of this has been mitigated by reduced interest rates, the current rate of house price increase is of particular concern." The department, however, stops short of suggesting ways that house price inflation can be contained.
Noting that the debt/GDP ratio is still above the Maastricht criterion of 60 per cent, the department argues forcefully for running budget surpluses in a period of strong economic growth, adding that this is the key to reducing the national debt.
"Current economic conditions in Ireland are better than `normal' and the case for running a budget in these circumstances is compelling," the department states.
It also says that the Irish economy still has a major infrastructural deficit and further significant investment must be made to correct this deficit and to provide for the needs of a rapidly growing economy.
"Our demographic structure requires significant investment in the economy to generate the strong output and employment growth necessary just to stop unemployment increasing," the department says. While EU funds should continue to play a substantial role in financing Ireland's investment needs, the department says it would be unwise to assume that transfers will remain indefinitely on the scale of the 1990s.
"We must plan for this eventuality now so that we will ultimately be able to meet more of our investment requirements from our own resources while maintaining the fiscal disciplines of Economic and Monetary Union."
The department says that EMU, which is now less than 13 months away, will present enormous challenges and opportunities for Ireland and all of the social partners and all sectors of the economy must play their part in preparing the ground for Ireland's successful participation.
"This will primarily require the maintenance of competitiveness and the flexibility needed to underpin strong sustainable economic and employment growth in an increasingly competitive international business climate," it says in the outlook.
The greying of the Irish population in the decades ahead will pose a less immediate but nevertheless major long-term challenge for the public finances, the department maintains.
Over the next two decades, Ireland's working population will stabilise and then start reducing while the number of those aged over 65 will increase with profound implications for Irish society.