John Gormley
Question:48 Mr. Gormley asked the Minister for Finance if he will report on the findings of the latest OECD economic survey of Ireland. [13836/99]
Written Answers. - OECD Surveys.
The 1999 Economic Survey of Ireland notes that the Irish economy has notched up five straight years of stunning economic performance. Output growth has averaged over 9 per cent per year on a GDP basis in the period 1994-98. Half of that growth has been reflected in employment gains and the rest in impressive labour productivity growth. Despite substantial increases in the labour force, thanks to Ireland's favourable demographics and to an important reversal in migration flows, the unemployment rate has fallen by nearly nine percentage points.
Spending growth has been remarkably well balanced, with export increases in the starring role, ably supported by private investment, and Government spending only playing a bit part. With booming tax receipts, the turnaround in Government finances has continued. There is now a sizeable surplus in its accounts, of about 1.75 per cent of GDP, and the level of Government debt in relation to GDP has shrunk by nearly half, to well below the Maastricht threshold of 60 per cent. Even though consumer price inflation is no longer among the lowest in the OECD, as it was a few years ago, it has remained below 2 per cent, despite the economic boom.
The report points out that there are signs of overheating. It states that labour shortages have moved beyond the realm of specific skills to a more generalised scarcity of even unskilled labour. The most obvious concern is that earnings are now growing more quickly than productivity in a number of sectors. House prices were rising rapidly at least until the latter part of 1998. The form of adjustment to supply constraints that is occurring is that higher wage rates are running ahead of productivity gains and pushing up costs, eroding competitiveness and braking the growth in exports, The risk is that this process could be too rapid, with unrealistic expectations leading to an overshooting of sustainable wage levels and a sharp cost-based slowdown in growth to well below potential rates.
The OECD forecasts that real GDP growth may ease somewhat and could be below 7 per cent by 2000. The major policy question is how to manage the pressures arising from the rapid expansion so as to ensure that growth is sustained at a high rate.