By Andrew Bushe
DUBLIN — The Celtic Tiger fell flat on its face in the middle of the year and has hardly stirred since, according to the latest report from the Central Bank.
The economy continued to grow relatively strongly in the first half of this year, but the bank said short-term indicators suggest growth may have “effectively ceased” in the past two quarters.
“This seems to be the picture whether one considers growth through the lens of the expenditure components of GDP or of output components,” its winter bulletin says.
The bulletin outlines the shock to economy of the international slowdown, with growth screeching to a virtual stop from over 10 percent in the space of just six months.
The bank says that growth measured in terms of GNP grew by about 5.5 percent this year, compared to 10.4 percent for 2000.
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“The balance of probability is that growth in the Irish economy will improve during 2002 and could be up to 3.5 percent for the year as a whole, although any delay in the international recovery could make this difficult to achieve,” the bank said.
The bulletin says that while Ireland’s economy had been greatly affected by the international slowdown, it was becoming clear in any event that growth rates could not continue at the rapid pace of recent years because of the emergence of resource constraints.
“With exports of goods and services actually exceeding the size of GNP, an improvement in export demand would kick-start growth and contribute through the multiplier effect to stronger domestic demand,” according to the bank.
While consumer prices have declined this year, the bank warns that underlying inflationary pressures remain quite strong.
It estimates Finance Minister Charlie McCreevy’s budget 2002 will add at least 1 percentage point to inflation.
“This brings the forecast increase next year to 4.5 percent which will be considerably higher than that predicted for the euro area, and is likely to affect competitiveness adversely,” the bank said.
“It would appear that there has been an increasing degree of wage flexibility in the Irish economy in recent times, as reflected by overtime and bonuses together with the relatively modest increase in unemployment.
“It is important that the evolution of public sector pay has due regard to Exchequer resources and to the need to avoid excessive inflation in the more sheltered sectors of the economy.”