The Irish economy contrasts with that of the rest of Euroland in two important respects: its high le...
The Irish economy contrasts with that of the rest of Euroland in two important respects: its high levels of growth and inflation.
Irish GDP growth for 2003 is forecast at 3.6%, having managed 3.9% last year. This compares with 0.8% for Euroland as a whole in 2002 and a predicted 1.5% for 2003.
Inflation in Ireland ran at 4.8% last year and is forecast to be 4.5% for 2003.
'We have had extraordinarily robust growth since the mid-1990s but a lot of that was catch-up for Ireland, which was the laggard within Europe,' says Richard Pease, European director at New Star Investments.
Quite how long Ireland can continue to provide European-style growth reminiscent of the bull market 1990s remains to be seen. Some overheating is expected in the year ahead, which is why inflation there is higher than in the rest of Europe.
The great advantage Ireland has is that its unit wage costs are substantially below those of most of its major trading partners such as Germany, France and the UK.
When this factor is coupled with Ireland's active canvassing to attract business from overseas, it suggests the country is doing its best to keep the bull run going.
The introduction of a 12% corporate tax rate this year is a positive for companies operating in Ireland. The less tax they pay, the more they have left over as profits in what is a competitive trading environment. There are plenty of multi-nationals with bases in the country.
'In truth, a lot of the companies operating out of Ireland are pretty strong and the internal economy is quite strong as well. A combination of these factors drove growth last year and that holds for this year as well,' says Gervais Williams, head of UK and Irish Small Caps at Gartmore.
'There are some more win-win investments such as Intel, which is building a big FAB (IT chips) plant in Ireland. It is putting more than E2bn into that.'
Williams is confident inflation is not a problem for the Irish economy for the time being. He does not anticipate any big hike in interest rates because it is part of Euroland where, if anything, rates are falling, making for a very buoyant Irish economy.
'If inflation continues to grow faster than in the rest of Europe, obviously it will become uncompetitive,' he says. 'But it is tolerable at this level for five years or more and will remain competitive.'
As the continental economy remains under pressure, Ireland is benefiting from trade with its European neighbours.
'The Irish financial sector used to do a lot of administration for firms and has quite a reputation in the EU for a 'can-do' attitude and low taxation,' says Williams. 'There are quite a lot of funds incorporated and listed in Ireland, such as hedge funds and offshore unit trusts.
'Although the market has been tough and the value of funds has fallen, a lot of new investment vehicles have been incorporated in Ireland and are continuing to grow their market presence and profits,' he adds.
He says: The result of this investment is that the Irish economy remains strong. As a feature of inward investment, the operations employ local people so the domestic economy gets a big boost in terms of employment in manufacturing, building companies, retail businesses and services, Williams notes.
GDP of 3.6% forecast for 2003.
Multinationals invest in Ireland.
Labour costs remain low relative to UK.
Inflation is running at 4.5%.
Interest rates coming down.
Ireland has had a long boom.
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