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Tuesday, 14 May, 2002, 10:43 GMT 11:43 UK
Irish economy loses its roar
A hand balancing euro coins
The new government has a careful balancing act ahead
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By Emma Clark
BBC News Online business reporter
The roar of the "Celtic tiger" has become muffled in recent months.

Ireland's once-booming economy has stumbled, along with rest of the world, ending years of extraordinary growth.

"It's hard to tell what cartoon there is to describe the next few years," says Austin Hughes, the chief economist of Irish International (II) Bank.

For the first time in a number of years, there are concerns about employment and there is also the fear of higher taxes

Austin Hughes
II Bank
"We are still experiencing a tigerish performance compared with our European counterparts.

"But we are in a post-boom economy - there is no question about that."

Double digit growth of 11.5% in 2000 almost halved to 5.9% last year.

And Irish voters are beginning to feel the pinch ahead of general election on 17 May.

"For the first time in a number of years, there are concerns about employment and there is also the fear of higher taxes," says Mr Hughes.

'An example to the world'

Since the late 1990s neither of these issues had caused too much concern.

Hillary Clinton, New York senator and wife of former US president, Bill Clinton
Hillary Clinton was impressed by Ireland's record

As recently as last year, unemployment was at a record low and Irish taxpayers enjoyed substantial cuts in income tax.

Finance Minister Charlie McCreevy also sliced corporation and capital gains tax, providing an attractive regime for foreign companies operating in Ireland.

As a result, Ireland experienced unprecedented levels of foreign investment, which fuelled the boom for its hi-tech and finance industries.

Many US companies that sited subsidiaries in Ireland saw it as an English-speaking gateway to Europe.

All this helped to cement the reputations of Prime Minister Bertie Ahern and Mr McCreevy as competent managers of the country's economy.

Even US Senator Hillary Clinton hailed Ireland "as an example to the world in how to improve standards of life" during a recent visit to Dublin.

Luck or skill?

Detractors, however, argue that Ireland - and its Taoiseach - were lucky.

"The government was awash with money out of a boom. It was no great skill to manage the economy," says Mr Hughes.

Bertie Ahern, Prime Minister of Ireland
Is Mr Ahern as competent an economic manager as people think?

"Now that has altogether changed. There needs to be a more disciplined approach."

One of Ireland's biggest problems is putting a lid on inflation.

The annual rate of inflation remains stubbornly high at close to 5%, according to recent figures from the Central Statistics Office.

A buoyant services sector, including restaurants, bars and hotels, is blamed for many of the price rises.

Irish inflation peaked at a 16-year high of 7% in late 2000 and remains around double the eurozone average.

"There is a tension there," says Keith Church, an economist at Oxford Economic Forecasting.

"People don't feel as rich as they should, with prices going up in the shops."

Mr Church also points out that higher prices will slowly erode Ireland's competitiveness with the rest of Europe.

Trouble ahead?

The country's deteriorating public finances are also a problem.

Ireland has done remarkably well, given its exposure to the hi-tech industry

Keith Church
Oxford Economic Forecasting

A healthy surplus in the country's current account is turning into a persistent deficit, meaning that government no longer has so much spare cash to cut taxes.

The shortage could also affect extensive public spending projects, which have seen the government plough money into infrastructure over recent years.

"No matter who is in power, managing the economy over the next five years is likely to prove a much more difficult task to the previous five-year period," says Bloxham Stockbrokers economist Alan McQuaid.

Still a big cat

But Ireland's roar has not yet been reduced to a meow.

Consumer confidence proved resilient in the face of 2001's slowdown and helped to sustain the hi-tech industries.

A tight labour market has also discouraged companies from laying off people too quickly - even though the US computer maker Gateway pulled out in late 2001.

"Ireland has done remarkably well, given its exposure to the hi-tech industry and the US," says Mr Church.

"Singapore and Korea have suffered far more."

II Bank's Mr Hughes compares the present state of the Irish economy to sunny days in London at 22 degrees.

"It would be pleasant, but if you were coming in from the Middle East, it would feel very cool.

"That's what's happened in Ireland. We have gone from a very hot climate to a balmy one."

Staying on the boil

And to some extent, Ireland's bumper growth in 2000 could not have been sustained.

Advert in local paper for Fianna Fail
Fianna Fail has to convince voters it can manage a slowdown

"The Irish economy grew so fast , but it was in a period of catch-up with the rest of Europe," says Mr Church.

"Ten years ago, it was a very poor country."

And for the present, Ireland continues to grow faster than the rest of Europe, even with its relatively meagre 5.9%.

In the next few years forecasters are predicting rates of 4-5%, still well above the UK's 2-3%.

Mr Ahern's task will be to take as much credit as possible for the economic successes of the past and to convince the electorate that he can keep growth bubbling along.

Whether the tiger will continue to burn bright is another matter. More likely than not, it will slink off back to Asia.

II Bank's Austin Hughes
"It has to be remembered that it's fairly easy to run an economy when the growth rate is in the order of 10%"
See also:

30 Apr 02 | Country profiles
Country profile: Ireland
25 Apr 02 | Europe
Q & A: Irish elections
26 Mar 02 | Northern Ireland
Clinton praise for Irish economy
08 Jan 02 | Business
Ireland's smooth changeover
05 Dec 01 | Business
Ireland warns of slowdown
10 Sep 01 | Business
Gateway shuts European headquarters
21 May 01 | Business
OECD praises Irish economy
29 May 01 | Business
Irish unemployment at record low
25 Jan 01 | Business
EC attacks Irish budget
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