The much-lauded Irish “Celtic tiger” economy is likely to see slower growth due to the downturn in the global IT sector and should adjust its budgets accordingly, said the International Monetary Fund (IMF) in an annual report.
Overall, the report endorses the Irish government’s handling of the economy, but it said the last budget should have been “neutral rather than expansionary.” The 2002 budget, due in December, should also take a neutral approach, the report said, “provided serious overheating or recession remain unlikely.”
Ireland’s real gross domestic product (GDP) expanded at an average annual rate of 9.7 percent between 1995 and 2000, boosted by participation in the EMU (European Monetary Union), plus “sound macroeconomic and regulatory policies, and strong labor force and employment growth,” the report said. The IMF expects to see “a moderation in growth to a more sustainable, albeit high, rate.”
However, Irish authorities face a number of challenges in making a smooth transition to a sustainable rate of growth, the report said. The importance to the Irish economy of foreign direct investment in technology means that the deteriorating global outlook poses “considerable downside risks,” it said.
Wages and prices will have to respond flexibly to any external shocks and the authorities should remain alert to potential stresses in the financial system, the IMF said.
Gateway recently pulled out of Ireland, cutting 900 jobs. However, this may be more indicative of Gateway’s problems than Ireland’s, as the company is pulling out of Europe and possibly Asia, too.