Résumé

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Ireland has now had 10 years of rapid growth, with the unemployment rate having been brought down from some 14 per cent to under 4 per cent. But rather than slow as might have been expected, Ireland experienced spectacular growth of well over 10 per cent in 2000 due to the confluence of several one-off factors which are now disappearing. Growth is expected to slow to under 8 per cent representing a more sustainable level. Inflation, although falling, remains a concern but unequal productivity growth between sectors is likely to leave inflation above the euro-area average for some time to come. The forces of growth are firmly embedded in the economy through favourable demographics, rising human capital formation and a high rate of technology-oriented investment. The authorities have created a favourable business climate for growth and this policy will need to be refined as Ireland moves up the value-added chain. This will require continued reforms to improve the efficiency of the public sector as well as the quality of regulation and to develop competitive markets more fully, notably in the network industries. The public sector, especially at local government level, will have to be streamlined and focused on the efficient delivery of public services. While automatic stabilisers should be allowed to work, fiscal policy should be oriented to maintaining a significant surplus for some time to come so as to smooth tax pressures by, for example, putting aside funding for future pension liabilities. More generally, fiscal policy will need to focus on improving the structure of the economy, including the efficient provision of infrastructure, while avoiding excessive pressure on resources. To keep the demand for new infrastructure within limits, the density of urbanisation should be increased in the Dublin area. With public sector pay systems continuing to be reformed, the social partnership agreements will need to evolve towards setting general principles guiding pay bargaining, while imposing less constraints on budgetary decisions. Rapid growth has also served to highlight the difficulty of meeting international environmental obligations. Policy in this area should make greater use of economic instruments to achieve objectives at least cost. In sum, Ireland has continued to grow at a rapid pace due in great part to the favourable framework conditions which have been created. Policies need to be refined so as to sustain the growth process. If this is done, the standard of living could continue to improve at an impressive pace in the coming years.