It is always interesting to look back at economists' projections of growth. In this respect the ESRI's record is better than most, writes Garret FitzGerald.
During the Celtic Tiger years, the institute's projections were consistently closer to what happened than were the forecasts of most other economists - although even the ESRI tended to underestimate our astonishing growth rate.
In September 2001 the ESRI's Medium-Term Review, noting the decline in the economy that had started earlier that year, rightly projected much slower growth in 2002.
And while its authors found it difficult to project the precise point at which we would start to recover from the recession that had begun four years ago, its July 2003 Medium-Term Review projected growth rates close to 5 per cent for 2005 and 2006. These now looks like being right.
We must hope that the institute's projection of a growth rate of just over 5 per cent a year for the remainder of the decade proves correct.
Our indigenous labour supply is now growing more slowly than in the 1990s because there are now fewer school-leavers and women entering the labour force. Little or no reduction is possible in unemployment, which now stands at 4.2 per cent.
In the 12 months to March 2004, our population increased by 65,000 and may have risen by even more in the 12 months now ending. Of that 65,000, 24,000 consisted of the natural increase in our indigenous population - the surplus of births over deaths - and there was almost no net emigration of Irish people in that period.
Thus in that year over 60 per cent of our population increase, as well as much of the increase in our workforce, was accounted for by immigrants.
The new ESRI Quarterly Bulletin includes the first information available on the educational level of immigrants who have joined our labour force. and it transpires that they are significantly better educated than our own labour force.
Whereas only 27 per cent of our workers have had third-level education, the proportion of immigrants with such education is twice that figure. And whereas 33 per cent of our Irish labour force never got beyond Junior Cert level, the equivalent figure for immigrants is only 15 per cent.
Two factors help to explain this divergence. First, the immigrant labour force is younger than our own and, second, the development of our educational system has been much more recent than in most of the countries from which immigrants come.
At the time when our older workers were in the educational system 40 years ago, less than 40 per cent of each age cohort were passing the Leaving Cert, and less than 10 per cent were entering higher education.
However, despite their higher level of education, immigrants from countries other than Britain and the US tend to be employed in lower-skill operations than Irish workers.
This is an important issue from the point of view of our economy, as the ESRI estimates that if we were able to make fuller use of these skills our national output would be over 3 per cent higher than it is today.
On a different issue, for several years I have been pointing out that during the recent recession the industrial output figures published by the Central Statistics Office (CSO) consistently exaggerated the limited increase in industrial output.
This is because the CSO is required by international practice to weight the importance of each individual industry by reference to the value it adds to the materials it uses. That value added includes the very large profits made by some multinationals - most of which are subsequently exported and add nothing to our welfare - although the activity here that generates these profits is hugely important to our economy.
Some of these multinationals continued to increase their output here during the recession and, because of the weighting system, this had the effect of seriously distorting the overall manufacturing output figures.
The ESRI has now decided to devise its industrial output index based on each industry's pay bill rather than on its added value.
Using this more relevant criterion, the increase in industrial output between 2000 and 2003 was only 10 per cent, as against the CSO's reported 25 per cent increase.
And if one excludes two high-tech and largely foreign-owned sectors - chemicals and electrical equipment - the rest of Irish manufacturing was effectively stagnant during this period, with an average annual output increase of less than 1 per cent.
However, the ESRI figures also show that during last year's economic recovery this statistical anomaly operated the other way round. For, although the CSO figures suggest that manufacturing output rose by only 1 per cent last year, on the more relevant pay-bill weighting basis manufacturing output seems to have risen by 5 per cent or by almost 9 per cent if the two industries mentioned above are excluded.
This issue of ESRI Quarterly Economic Commentary also takes up another issue that was recently raised in this column, the much slower growth in our living standards that we have begun to experience as a result of the recent switch from an industry-based economy to one in which more labour-intensive services have now become the dominant sector.
The institute believes that last year, when overall output grew by 5 per cent, our living standards improved by 3.7 per cent. However, I feel that even this figure may turn out to be exaggerated, because the increase in population, which in 2003 rose by 1.6 per cent, may have been even greater in 2004.
If this proves to have been the case, the improvement in living standards, which in the immediately preceding years was below 1 per cent a year, may have been lower than the ESRI suggests.
Our house-building boom reached its peak last year, and the ESRI expects that in the years ahead the share of our output absorbed by investment will stop rising or might even fall slightly.
As a result, even though the institute also expects some increase in the share of resources absorbed by public services in the years ahead, it believes this could leave room for some greater annual increase in personal consumption.
It is difficult, however, to see how in the years ahead living standards could rise by more than 3.5 per cent a year, which is about half the annual rate of improvement that we experienced during the Celtic Tiger years.