Growth Rate Of The Irish Economy example essay topic

GDP GROWTH Ireland - the Celtic Tiger (This is my section) I'll obviously focus on Ireland. The Celtic Tiger, Ireland has benefited incredibly from its membership in the European Union, both through financial aid and through inward investment by companies opening factories in the country to gain access to European markets and take advantage of the country's low rate of corporation tax. As you can see, Ireland has been growing a remarkable rate, due mainly to a pro- business stance, low corporate taxes and its ability to woo foreign investors by securing union agreement to wage restraint in exchange for tax cuts. INFLATION Ireland - once a problem, now steady As you can see from the graph, Ireland, much like the other countries, dealt with increased inflation in the mid 1970's and early 1980's. However, Ireland experienced a sharp inflationary increase due mainly to rapidly increasing unemployment rates coupled with globally stagnant economic development.

However, with the turnaround of Ireland in the mid 1980's, the country has been enjoying relatively low inflation rates. Recently, however, analysts feel Ireland's EU membership could damage its low inflationary trend because of future plans on the part of the Economic Policy Committee of the European Union. INTEREST RATES Ireland - hand-in-hand with economic development While moving relatively in sync with the other countries, Ireland most notably shows a significant difference from the countries' trend around 1997 when Ireland really began to come into its own as an economic power within the European Union. However, it's important to note that the European Central Bank (ECB) sets Ireland's interest rate. Germany's sluggish growth limits the extent to which the ECB can hike rates.

This creates a bizarre situation whereby Ireland's monetary policy is more closely linked closer to the anemic Germany than to its own booming economy. Irish growth has fed off the structural rigidities of continental Europe. GDP per CAPITA Ireland - steadily increasing labor force Ireland's GDP per capita is an interesting economic indicator, particularly when graphed. While Ireland experienced no spectacular GDP per capita growth in the earlier half of the twentieth century, 1985 marked the beginning a turning point economically.

The growth rate of the Irish economy began to far surpass a spectacular trend of population growth, due to increased demand for domestic labor. However, GDP per capita seems to be leveling off in 2002, which would be explained by a satisfaction of labor demand and leveled population growth. Copyright 2004 The Financial Times Limited Financial Times (London, England) December 1, 2004 Wednesday Europe Edition 1 SECTION: EUROPE; Pg. 3 LENGTH: 687 words HEADLINE: Ahern buffs his halo as he rides a reinvigorated Celtic Tiger: Fianna Fail's recent assumption of the mantle of social justice is more electoral ploy than economic-policy shift, says John Murray Brown BYLINE: By JOHN MURRAY BROWN BODY: Just as the Celtic Tiger is getting its second wind, Bertie Ahern, the Irish prime minister, appears anxious to give his government a more caring image. The change of tack may be more cosmetic than real. But recent events suggest a concerted attempt to reposition his ruling Fianna Fail as the party of the dispossessed, the vulnerable and the poor. Today's Irish budget, delivered by Brian Cowen, the new finance minister, is expected to confirm this shift in emphasis.

However, as ever with Fianna Fail - less a political party than a populist movement similar to Peronist or Gaullism - the transformation may have more to do with electoral calculation than ideology. The perpetuation of Ireland's remarkable turn round from 1980's basket-case to Europe's fastest growing economy depends on its pro- business stance, its low corporate taxes and its ability to woo foreign investors by securing union agreement to wage restraint in exchange for tax cuts. After growing by 10.1 per cent in 2000, gross national product increased by just 1.5 per cent in 2002, recovering slightly last year to 2.8 per cent. With exports recovering strongly despite the strong euro, the Organisation for Economic Co-operation and Development yesterday forecast growth of 5 per cent this year and each of the following two years. However, most economists agree that the benefits of the boom have been unevenly distributed.

Fianna Fail's flirtation with the left is shaped by a need to redress the impression that the party is impervious to such concerns. The perception of a poor record on social justice led in June to its worst ever results in local council and European parliamentary elections, according to party officials. In important urban constituencies Fianna Fail lost ground to the Labour party and, of greater concern to its supporters, to Sinn Fein, the IRA's political wing. Sinn Fein has projected itself in the Republic as the defender of those left behind by the Celtic Tiger. Shocked by the setbacks, Fianna Fail activists concluded that the party's economic policy was too far to the right. They blamed Charlie McCreevy, the former finance minister, who has since gone to Brussels as Ireland's commissioner.

It seems the party wants to change. In a gesture to left wingers, Father Sean Healey, a Roman Catholic priest, poverty activist and critic of government economic policy, was invited this summer to address its annual brainstorming session. Mr Ahern fuelled speculation of a shift of emphasis when he claimed this month to be "one of the few socialists left in Ireland". Some of Mr Ahern's new-found rhetoric may have very local roots. In his recent attack on management at Aer Lingus, he almost certainly had an eye on the important marginal constituency of north Dublin, where many of the state airline's employees live. Willie Walsh, the airline's chief executive, is widely credited with saving the company from collapse, but the prime minister publicly censured him for seeking personal aggrandisement and said the management's proposals for some form of private equity investment betrayed a get-rich-quick mentality.

Rua iri Quinn, former leader of the Irish Labour party, says there is "nothing left of centre about Fianna Fail. This is a populist party... This is a party where the leader is referred to as the boss". Fianna Fail's political philosophy has always been all-embracing, appealing to businesses and workers alike. But the factors that created the Celtic Tiger will be hard to reverse.

As Michael Crowley, economist with Bank of Ireland, observes: "The policy decisions creating a low-tax model have been taken". He believes the only threats to Ireland achieving its growth potential of 6-6.5 per cent are a big rise in oil prices or a dramatic appreciation of the euro that would force the European Central Bank to keep rates lower for longer than anticipated. However, an election does not have to be called until 2007. In the meantime, by reclaiming the mantle of the left for Fianna Fail, Mr Ahern, who is a risk-averse politician, is perhaps acknowledging that this is the area where the party could be vulnerable. LOAD-DATE: November 30, 2004 CELTIC TIGER This is a punning reference to the longer-established term tiger economy, which has been used for about fifteen years to describe the more successful small Asian economies. The original tiger economies were the Four Tigers of Hong Kong, Singapore, Taiwan and South Korea, which have been joined more recently by others that include the Philippines, Thailand and Malaysia (though these, with Hong Kong, have suffered substantial economic reverses this year, which have affected many Western financial markets).

The Celtic Tiger is the Republic of Ireland, which has benefited very greatly from its membership of the European Union, both through financial aid and through inward investment by companies opening factories in the country to gain access to European markets and take advantage of the country's low rate of corporation tax. As a result, Ireland claims to have been the fastest-growing economy in Europe over the past decade, admittedly from a low base (though some critics claim the figures have been inflated through a sneaky tendency of some multinationals to pretend output comes from Ireland in order to pay less tax, a technique known as transfer pricing). The term is mostly confined to British and Irish business and financial circles, and must be classed as jargon. web Copyright 2005 The Financial Times Limited Financial Times (London, England) January 31, 2005 Monday London Edition 1 SECTION: COMMENT; Pg. 19 LENGTH: 687 words HEADLINE: Ireland's record does not make it a model: WOLFGANG MUNCHAU BYLINE: By WOLFGANG MUNCHAU BODY: The European Union is the second largest economy in the world. Yet it consists mainly of small economies and is governed by officials whose mindset is dominated by small-country economics. One of them is Charlie McCreevy, the EU internal market commissioner and a former Irish finance minister. When he last week presented the latest league table showing how fast member states implement EU legislation, he said: "It is an obvious and glaring point.

The most dynamic economies in the last years - the UK, Ireland and the Nordic countries - also have had the best compliance record". In fact, the point is neither obvious nor glaring. It is plainly wrong. There is no economic theory or any empirical evidence to suggest that the speed of implementing internal market laws affects economic growth in an economy such as the EU. If this is how the new European Commission continues to conduct the debate on economic growth, then we are all going to be in serious trouble. It is, of course, right for the Commission to publish league tables that show how fast countries are implementing EU internal market legislation.

These tables have put pressure on governments and parliaments to improve compliance. France and Germany used to be among the worst offenders but now have implementation records that are on a par with the UK. Some small countries have traditionally fared better because they have relatively simple legislative procedures. I suspect that Mr McCreevy's comment was the result not of deep reflection but of exuberant spontaneity. But he might want to think a little more carefully about using his own country as an example for others to follow. It is true that Ireland has undergone a tremendous economic transition that was to a large extent the result of sensible economic policies, including those of Mr McCreevy himself.

But he should not lecture others. Not only is it annoying. More importantly, most of what is being said is wrong. Ireland's story is unique: a small, English-speaking, non-industrialised country on the edge of Europe was able to secure structural funds from the EU, cut taxes, deregulate faster than its neighbours and attract lots of foreign companies in the process. Well done, Ireland - but this is not the way forward for low-growth Europe. There are complex reasons for disappointing growth in several large EU economies: ageing populations, unsustainable welfare systems, fiscal constraints imposed by the stability and growth pact and serious inefficiencies in financial markets.

Furthermore, the same policies can have a different impact on different countries. Tax cuts were instrumental in the success of Ireland's economic model but they have not worked for Germany, for example. Germany has also cut its income and corporate taxes significantly in the past few years, although not quite as much as the Irish. Not only have the tax cuts failed to produce an investment boom, they have contributed significantly to a widening structural budget deficit. High-tax Germany in 1990 was a much more successful economy than low-tax Germany in 2005.

Ireland is a small, open economy. The eurozone is a large and relatively closed economy, much more similar to the US than to Ireland. Europe will not achieve a sustainably higher growth rate through improving its international competitiveness, for example by producing goods and services at lower unit labour costs than Asia. Whatever the problem of the low-growth European countries, it is not global competitiveness. Germany is already the largest exporter in the world. It has very competitive industries and companies.

Instead, the large European economies, with the exception of the UK, need to generate more domestic demand. The serious question is whether this should be done primarily through microeconomic reforms, a change in macroeconomic policy or some combination of the two. So please spare us the folksy banter and idle talk about Ireland and Finland. Mr McCreevy and his fellow commissioners are in a unique position to shape the debate on Europe's economic future. They should refrain from such platitudes. LOAD-DATE: January 31, 2005 Copyright 2004 Financial Times Information All rights reserved Global News Wire - Europe Intelligence Wire Copyright 2004 The Sunday Independent The Sunday Independent (Ireland) October 24, 2004 LENGTH: 688 words HEADLINE: LOW-TAX POLICIES CREATED THE TIGER BODY: ANYONE who argues, as the Irish Congress of Trade Unions (ICTU) does, that Ireland's low-tax regime was not a cornerstone of our recent economic success, must be living in some parallel universe.

To claim that lower tax on income, capital and corporations has not greatly facilitated the rapid rate of economic growth, or indeed the huge surge in employment in this economy, is fanciful in the extreme. And yet this is what the ICTU contends in its latest document: 'Tax cuts did not create the Celtic Tiger. ' In the late Eighties some 1.2 million people worked in the economy, a figure little changed since the foundation of this State in 1922. Currently, there are 1.8 million in employment, a 50 per cent increase in less than two decades. This expanded workforce now includes many who have returned from abroad to work here, who were forced to emigrate in the barren Eighties. The Ireland they left behind was a land of high tax, high unemployment, high debt, high emigration, one of low growth, little opportunity, and less hope.

Today, one-third of immigrants are returning Irish nationals, and for many the Ireland of their homecoming is unrecognisable from the place they left, not least the low-tax regime that has released energy and enterprise, that has generated self-confidence, created jobs and helped raise living standards. The transformation of the Irish economy since the low point of the mid-Eighties represents one of the most remarkable recoveries by any developed economy in modern times. Less than 20 years ago Irish living standards were two-thirds of the European Union (15-member) average. From being one of the poorest of the rich, Ireland has become one of the EU's richer member states. The reasons for that economic success have been well rehearsed: the rising population, the educated work force, and the very low level of female participation within that workforce. All these provided the potential for a rapid expansion in employment.

Add in the financial transfers from the EU budget, which helped to develop the national infrastructure, the roads and telecommunications. And, of course, very clear benefits accrued from access to the single market; particularly for foreign multinational companies who were keen to locate here, and to use Ireland as a low-tax, and low-labour cost base for their European operations. Except, of course, few of those multinationals would have invested in Ireland without the incentive of a low corporate-tax regime. And they would never have stayed here, if the corporate tax advantage was subject to review, change, and ongoing uncertainty. In 1956, as economic policy was reversed and free trade replaced protectionism, the first step to encourage foreign direct investment in Ireland was the inducement of low corporate tax rates. And all parties in all governments have held that policy line ever since, not least against some strong external pressure (including from the EU) to force us to change it.

What is different this time is that for the first time the low-tax consensus has been broken in this country, by the ICTU. It has raised the white flag on corporate taxation. In doing so the ICTU has sent a disturbing message to multinationals based here that may wish to expand and to those who might come, but may now be deterred. This country's low-tax regime has been a proven winning formula; otherwise, why have so many other of the new EU member states from central and eastern Europe copied it in a bid to emulate Ireland's economic performance? In business, one does not change a winning formula.

Low taxes, whether corporate, capital or income, have been central to the Irish economic success story. But since the ICTU now chooses to believe that Ireland's low-tax model was not a factor in the economic boom, it now favours higher taxes to finance higher spending, and feels those higher taxes would not adversely affect economic performance, by damaging employment and growth prospects. The ICTU should have an economic reality check, abandon the parallel universe, return to earth and live in the real world again. JOURNAL-CODE: FSI I LOAD-DATE: October 24, 2004 Copyright 2005 Financial Times Information All rights reserved Global News Wire - Europe Intelligence Wire Copyright 2005 Investors Chronicle Investors Chronicle February 11, 2005 LENGTH: 1426 words HEADLINE: TAP INTO THE CELTIC TIGER BODY: Growth stories are few and far between. Europe remains mired by restructuring, and interest rates have been creeping up in the US and in the UK. Ireland, on the other hand, has been a solid growth story for the past 10 years - and its prospects remain intact.

The Irish economy has been a breeding ground for asset price growth. And, unusually, the expansion has been accompanied by a dramatic rise in the values of residential property. The Irish, it would seem, are even more obsessed with property than the English. Spiralling asset prices and ballooning debt may not be great for long-term economic health - they make an eventual soft landing that much more difficult.

But this is not the UK investor's problem, at least not over the coming months. The outlook for growth in Ireland continues to be far brighter than in other countries. So the stocks that have benefited most from these conditions in 2004 are well-placed to extend their performance in 2005. Outperformance Ireland's economy should grow faster than any of the major economies.

Economists at Goodbody Stockbrokers in Dublin expect Irish gross domestic product (GDP) to grow by 5.3 per cent in 2005, versus 2.8 per cent for the UK, 2 per cent for Europe, 2.2 per cent for Japan, and 3.5 per cent for the US. This is reflected in the performance of the Irish stock market. The ISEQ (Irish benchmark equity index) is, in sterling terms, up 31 per cent over the past 12 months, against 12 per cent for the FTSE 100, 7 per cent for the DAX, and a 3 per cent sterling gain for the S&P 500 (Source: Bloomberg). Davy Stockbrokers, in Dublin, reported that the ISEQ "has outperformed the Euro first 300 by 60 per cent over the past 10 years and there has been only one year out of the 10 (1999) when the Irish index underperformed". This market performance is based on real economic progress. Ireland's unemployment rate in 1993 was over 15 per cent, and its GDP per capita was less than 70 per cent of the European Union (EU) average.

Its GDP per capita is now - around 10 years later - 125 per cent of the EU average, and unemployment averaged around 4.4 per cent last year (Source: Enterprise Strategy Group, For fas Secretariat). Put bluntly, Ireland was poor and now it's rich. Euro strength Strength in the euro increases the allure of the Irish market to international fund managers. It also, indirectly, stimulates growth. The European Central Bank (ECB) sets Ireland's interest rate. This creates a bizarre situation whereby Ireland's monetary policy is more closely linked closer to the anaemic Germany than to its own booming economy.

This quickens the virtuous circle, in terms of growth, since ECB rates are too low for Ireland, and have helped push asset prices higher and increase private sector borrowing. And the euro's strength is a major factor in keeping interest rates low. The impact of low interest rates contributes far more to Irish growth than would, for example, the beneficial impact on the overseas earnings of Irish companies, produced by euro weakness. An over-reliance on price growth in residential property has meant that the Irish economy has been particularly sensitive to a relaxed monetary policy. But, clearly, another way of looking at this reliance is that it is also an Achilles Heel - and one that hasn't been exposed so far because interest rates have remained low. Continued strength in the euro helps maintain the status quo, though.

The restructuring beginning to take place in Germany worsens the already weak levels of domestic demand. As growth isn't coming from anywhere else, the German economy has become over-reliant on exports. So, a rising euro strikes at the heart of German economic growth, and is killing the country's recovery. With this backdrop, the ECB is unlikely to aggressively hike rates. Overseas earnings Though beneficial to the economy as a whole, the strong euro has hurt the overseas earnings of Irish stocks. And it's difficult for the investor to completely avoid any impact.

After all, Ireland is a fairly open economy, and most Irish companies operate on other shores. But the euro effect can be restricted, by avoiding the stocks most affected. Waterford Wedgewood, for example, has had problems in this regard. Goodbody Stockbrokers has a "reduce" recommendation on the company. The share price has chronically underperformed the ISEQ in recent years, reflecting pressure on earnings from its US operations. The company can hedge its currency exposure, but if the dollar resumes its decline, this becomes ever more expensive.

A soft landing? There is an important assumption contained in consensus estimates for Irish growth: that the market for residential property will have a soft landing, or at least if it has a hard landing, it won't do so in 2005. In the UK, rates rose until asset price growth was quelled - no room for ambiguity there. But the direction that Irish borrowing levels will take is nothing like as clear. Even so, the major financial institutions don't fear a meltdown in 2005. This seems reasonable, with momentum in the housing market still strong, and monetary policy likely to remain loose.

There are growth opportunities in emerging markets, and we " ve recently seen some impressive gains. But, in terms of choosing a grown-up market, it's hard to find a more compelling growth story than Ireland. Irish sectors and stocks for 2005 Professional Irish investors tend to adopt a bottom-up, rather than a top-down approach - in other words, it's more about stocks than sectors. An exception to this is the financial sector. In fact, its heavy weighting in the index has been one of the reasons that the Irish market has tended to trade at a discount to other developed equity markets. Allied Irish Banks (AIB), Bank of Ireland, Anglo Irish Bank, and Irish Life and Permanent between them account for around 40 per cent of the market capitalisation of the Irish market.

Financial sector The share prices of companies in the Irish financial sector have significantly underperformed the rest of the market - the ISEQ financial index is up 16 per cent over the past 12 months, versus 42 per cent for the non-financials (source: Bloomberg). Much of their earnings come from their operations in the UK. The share prices of the Irish banks have recently held up well, since the share prices of UK banks rallied on the feeling that the Bank of England's rate-hiking cycle is nearing an end. But the monetary tightening in the UK may well slow down consumer spending this year, which may cause a further squeeze on the revenues of Irish banks.

Out of the two majors, the share price of AIB has outperformed the share price of Bank of Ireland. The market felt that volume growth went some way to compensate for the pressure on their margins, but worries over the Bank of Ireland's cost base is an ongoing concern. Also, the AIB is less exposed to a spending downturn in the UK. So, Anglo Irish has been the star performer. The bank's shares have risen, in sterling terms, by 44 per cent over the past 12 months (source: Datastream). The bank has an enviable niche, and remains a solid play on lending to small-to-medium-sized enterprises.

Growth stocks The Irish market's outperformance reflects its relating over the past couple of years. Rory Gillen, head of research at Merrion Capital, has questioned the scope for further outperformance this year against its European peers. But he maintains: "There are still a lot of quality high-growth companies out there, for example, King span (construction and building materials), IAWS (food), Paddy Power (leisure / gaming ), and Grafton (construction and building materials)". IAWS is a popular "buy" rating with Irish brokers. The company has been growing ahead of expectations, with adjusted EPS up 17 per cent in the FY 2004 results. The share price has risen by more than 34 per cent (source: Datastream) over the past 12 months.

The recently announced acquisition of Groupe Hubert, a leading par baker of confectionery products in France, cost the company E 130 m, and is the group's first major expansion into the European market. Stockbroker NCB commented:" The deal is in line with group strategy to remain focused in the par-baked sector and, by acquiring a leading established player in the French market, risks are minimised". JOURNAL-CODE: FIC LOAD-DATE: February 14, 2005.