Signals of a slowdown in the economy emerged yesterday with the release of figures which showed a drop for the first time in new house starts and a slide in exports.
The number of new houses built in the last quarter of 2006 fell for the first time in 10 years, according to figures released by the Central Statistics Office (CSO). Separate figures showed that the economy's export performance worsened severely in the same period.
Minister for Finance Brian Cowen warned that risks to the economy were increasing while business group Ibec described the export figures for the last three months of 2006 as "dismal".
However, Mr Cowen welcomed the strong overall growth in the economy last year, the highest since 2002. He said the economic activity had been buoyant. But he cautioned: "Despite the size, strength and length of our economic success, we must not take that success for granted."
Gross Domestic Product (GDP) - the level of output in the economy in a given period - grew by 6 per cent last year. The full year out-turn is stronger than December's Government estimate of 5.4 per cent, but growth slowed in the final quarter to 5 per cent,
That is below the Government's projection of 5.3 per cent growth this year.
While Government forecasts see the economy relying on more domestic demand next year, the sharp deterioration in external trade suggests this trend may be more significant than expected.
Final quarter net exports - exports of goods and services less imports of goods and services - fell annually by 10.2 per cent, a significantly worse outturn than the 2.8 per cent growth that was recorded for 2006 as a whole.
Government forecasts are for a more modest 2.3 per cent fall in net exports next year.
Although full-year net export growth was positive, a breakdown of exports reveals that goods exports rose by just 0.5 per cent.
The number of new houses built in the final quarter was 1.7 per cent, down on the same period of 2005. It compared to 2.9 per cent growth for the year as a whole. Data on planning permissions, also updated yesterday, suggest this trend is set to continue for some time.
Approvals of new dwellings in the final quarter of 2006 were 21.4 per cent lower than the same period of 2005, while the number of approved apartments was 30.4 per cent lower.
Pointing to the slowdown in the housing market, Ibec chief economist David Croughan said it was becoming more urgent for the economy to regain competitiveness if it was to compensate for a declining construction sector. "These figures contain no comfort," he said.
He added that the figures would have been worse but for a strong performance by services exports. He said the figures were a "measure of the loss of competitiveness, which has resulted in unbalanced growth in recent years. This cannot be sustained in the medium term."
However, Bank of Ireland economist Dan McLaughlin said the State's export performance was likely to bounce back in the current year, driving GDP growth as high as 6 per cent for 2007 as a whole.
Goodbody economist Dermot O'Leary said the economy's performance this year would be influenced by the housing market. "With recent data showing housing starts on a declining trend, new housing will act as a drag on economic growth in 2007," Mr O'Leary said.
Mr Cowen welcomed the figures but said the Government was not complacent about the economy. "We live in an increasingly competitive global environment in which we have to trade if we are to prosper. We must ensure that we maintain and build on our competitiveness."