PART III ECONOMIC TRENDS AND OUTLOOK Major Trends and Outlook Ireland posted real GDP growth of about 2.5 percent and real GNP growth of 2.25 percent in 1993. Because of the abolition of customs procedures within the EU at the start of 1993 there has been a disruption to the compilation and publication of trade data. Thus, in the absence of comprehensive data on trade, one must rely on recent estimates. Overall, merchandize export volume growth appears to have been about 4 percent. Merchandize import growth, meanwhile, was about 3 percent, reflecting the relatively weak growth in domestic demand. Ireland continues to have a positive trade balance; almost 4 billion, about 14 percent of GNP, in 1993. The current account surplus rose to 1.97 billion, about 7 percent of GNP. Export growth was particularly strong in the high technology sectors in the first half of 1993, slackening in the second half due to weaker demand in Continental Europe. There was a significant fall in agricultural exports following an exceptional increase in 1992. Traditional local exporting industries, such as clothing and furniture, experienced moderate growth in the face of sluggish export markets. Consumer confidence remained rather subdued during most of 1993 as consumers continued to be cautious in the aftermath of the currency crisis. However, consumer confidence returned during the last quarter of 1993 with evidence that interest rates would remain low. Overall, consumer spending increased by about 1.75 percent for the year as a whole. The volume of fixed investment was virtually flat in 1993. A small increase in building and construction of 1.5 percent was offset by a 2.0 decline in machinery and equipment investment. Inflation was historically low averaging 1.5 percent during 1993. The Economic Outlook for 1994 The Irish economy is expected to continue to grow in 1994. GDP seems likely to expand by about 4 percent which would compare favorably with projected growth of around 2 percent for Ireland's main trading partners. The rate of expansion of real GNP will probably also be around 4.0 percent. Export volume growth is likely to be stronger in 1994 at about 5.75 percent. The agricultural sector is not expected to generate any further growth in the level of exports due to a run-down in intervention stocks, but at one percent, the decline may be less than in 1993. High-technology exports are likely to continue to grow, though at a slower pace, reflecting slower export growth from this sector. Import volume growth is likely to be about 6 percent in response to faster growth in domestic demand and as investment in machinery and new car sales pick up. Overall, a healthy trade surplus of around 4.2 billion, 14.0 percent of GNP, is expected in 1994. Net factor income outflows are expected to increase, though at a slower pace, reflecting slower export growth from the high-technology sectors. The international transfers balance is expected to fall slightly because of lower net EU receipts, a departure from recent trends. A reduced current account balance in the region of IP 1.88 billion, 6.25 percent of GNP, is projected for 1994 as a result. Consumer prices are forecast to rise by about 2.5 percent in 1994. Principal Growth Sectors (A) Manufacturing Gross output in manufacturing industry increased by almost 5.5 percent in 1993 compared to the previous year. The high-technology sectors, which are predominantly foreign-owned and account for over 50 percent of net output, grew more rapidly than the indigenous sectors during the year, and accounted for about three quarters of the overall growth rate in manufacturing. The main industries were the pharmaceuticals, office and data processing machinery, other foods and electrical engineering sectors. Manufacturing output is expected to grow by 6 percent in 1994, reflecting an improvement in international demand, especially in the U.K. market. Manufacturing output growth is expected to be more broadly based than in recent years. (B) Services Building and construction sector output is estimated to have grown by approximately 1.5 percent in 1993 with the prospects for 1994 being an increase of 5 percent. In the services sector, it is estimated that private sector services output grew moderately in 1993 as a result of continued weak growth in domestic demand. Public sector output increased in line with the small rise in the numbers employed. The anticipated upturn in economic activity in 1994 should result in a substantial acceleration in the growth of the services sector. An increase in total service output of about 4 percent is projected, with almost all types of services sharing in the growth. (C) Agriculture Preliminary estimates indicate that the volume of gross agricultural output fell by 2.25 percent in 1993. Weather conditions were partly responsible for this decline in some major categories. Allowing for an increased input volume, a terms-of-trade gain and higher subsidies, nominal agricultural incomes are estimated to have increased by about 4 percent (2.5 percent in real terms) in 1993. The outlook for 1994 remains uncertain. Subsidies are expected to account for a larger share of agricultural income due to deferred payments from earlier years and ongoing CAP reform. However, weather conditions in the first four months of 1994 have been sufficiently adverse to affect the annual level of output. Output is expected to fall by 0.25 percent, with feed input expected to increase by 1.75 percent. Nominal agricultural incomes are expected to increase by 7.75 percent (5.25 percent in real terms) in 1994. Government Role in the Economy (A) National Economic Program In recent years, most collective bargaining in Ireland has taken place in the context of a national economic program. A new program, the Program for Competitiveness and Work (PCW) was agreed to by representatives of governmnent, unions, employers and farmers in February 1994 and was a major element of the Government's success in fostering economic growth. The PCW is Ireland's third centralized pay agreement in recent years and replaces the Program for Economic and Social Progress (PESP) which expired in 1993. These programs are credited with providing a favorable economic climate for the strong growth in Irish GNP since 1987. The declared aim of the new program, which provides for pay raises amounting to eight percent over three years to employees in the public and private sectors, is to help create a substantial number of new jobs. The Government also expects the plan to help increase employment by 60,000 over the next three years, and to create 100,000 jobs for the unemployed in community work schemes. Of critical importance to unions and employers are the moderate pay elements of the PCW and the promise of industrial peace. (B) Industrial Policy Strategy In 1993 the Government announced plans for a new industrial policy strategy, based primarily on the recommendations of a policy review group. The government released a report entitled "Employment through Enterprise" and outlined its new strategy. The key aims of the plan are to strengthen Ireland's indigenous industrial sector and spur the creation of jobs by injecting more competition into a sector dominated by state-owned enterprises. A new emphasis would be placed on the development of indigenous industry, inward investment would be promoted in a more cost- effective and specialized manner, and EU funds and advisory services would be sought for development of the industrial sector. Key aspects of the announced strategy cover many areas, including taxation, energy, ports, communications, transportation, infrastructure and the environment, commercial state enterprises, education and training, competition policy, foreign trade and representation, the food industry, and industrial development and promotion agencies. (C) National Development Plan The Irish Government submitted its National Development Plan to the EU Commission in October 1993. From 1993-1999 investment from all sources -- public, private and EU funding -- would total IP 20 billion, with the EU contributing IP 8 billion from its structural and cohesion funds. The projected level of EU funding for the period, was subsequently revised downward to IP 7.2 billion ($10.1 billion) by the European Commission. Since February 1994 the Irish Government has experienced problems with the European Commission over certain aspects of the plan and a delegation of Commission officials visited Dublin in mid-February to discuss the plan in detail. In June 1994, it was confirmed that that EU funding will now amount to IP 6.2 billion (USdols 8.7 billion) for the period 1994-1999 as IP one billion was already allocated for 1993. The aim of the plan is turn the investment and the ensuing growth which comes from it, into jobs in industry, services, natural resources, tourism and construction. The plan will bring IP 1 billion a year for the next six years into the Irish economy, with the potential to create 90,000 new jobs. (D) Balance of Payments Situation Government finances performed well in 1993. The current budget deficit was IP 146 million below budget target, due mainly to a buoyant direct tax performance and debt service savings of IP 100 million. The government continues to give emphasis to the reduction of government debt. There was a slight rise in the 1993 debt/GNP ration at just over 102 percent, attributable to the adjustment of the Irish Pound within the ERM. The downward debt/GNP trend is expected to continue in 1994. The current budget deficit for 1994 is estimated at 1.8 percent of GNP. Trade and Investment Barriers Ireland maintains a limited number of barriers to U.S. services trade. Airlines serving Ireland may provide their own ground handling services, but are prohibited from providing ground handling services to other airlines. The Irish banking and insurance sectors are slowly becoming deregulated. Full deregulation in insurance will not occur until 1998. An immediate opportunity for U.S. companies exists in the Dublin International Financial Services Center (IFSC). This center offers interested U.S. companies the opportunity to establish an EC financial base. The IFSC is attracting international financial services such as asset financing, captive insurance, fund and investment management, and corporate treasury measurement. Qualified financial services companies have a maximum tax of 10 percent through the year 2005, as long as a license is granted before the end of 1994. There are approximately 260 projects approved. The United States has the second largest representation with approximately 50 projects. Labor Force Following an estimated rise of 14,000 in 1993, growth in the labor force is expected to decelerate marginally in 1994 reflecting a resumption of significant net outward migration. Employment, on average, is expected to have grown by 9,000. The services sector, again, was the main engine of growth. For the year as a whole, employment in this sector is estimated to have risen by 22,000, some in the form of part-time employment. Industrial employment, which includes building and construction, is estimated to have declined by 5,000 with manufacturing registering a fall of 2,000. A greater than expected fall in agricultural employment also offset the gains made in the services sector. The most noticeable feature of developments in the labor market in 1993 was the rise in female participation, which accounted for all of the increase in the labor force as well as employment gains. Unemployment in 1993 rose by only 11,000, which represents a marked deceleration in the rate of increase evident since 1990, due partly to the increase in emigration and the rise in employment. A recovery is projected in industrial employment in 1994, particularly in the more labor-intensive sectors as demand for industrial output grows. Further expansion is also expected in the services sector. Overall, total employment is predicted to rise by as much as 24,000 in 1994, partly reflecting the effect of expanding Government employment schemes. The combination of increased emigration and the strong growth in employment should result in a fall in unemployment in 1994. The standard live register unemployment rate is set to decline to around 15.25 percent of the labor force, from 15.75 percent in 1993. Major Local and Third Country Competitors in Specific Sectors Given Ireland's dependence on international trade, there is strong local and third country competition for U.S. exporters. Irish firms have a strong and increasing expertise in international business and the Irish government is encouraging more indigenous firms to compete in export markets. At the same time, the GOI actively encourages international investment in Ireland. Thus, there is a strong and healthy mixture of local, U.S., and third country competition in the Irish marketplace. There are over 1,000 international firms with operations in Ireland. The United States is the principal international investor with over one third of all international investment. The U.K. is second, followed by Germany. At present, there is limited Japanese and other Far Eastern investment in Ireland. Detailed listings of local, U.S., and third country competitors in specific sectors is available in the Kompass Register of Industry and Commerce (see Appendix C for contact details). Infrastructure Situation Ireland has close connections to international markets. No part of the country is more than 70 miles from a harbor or airport from which frequent shipping and air services connect with the U.K., Continental Europe, and other international destinations. An extensive road and rail network provides internal transportation, supplemented by domestic air services between Dublin and Ireland's three other international airports (Shannon, Cork, and Knock) and its six regional airports Ireland has 58,000 miles of paved roads, of which 9,875 are classified as main roads. While the country has more paved roads on a per capita basis than any other country in the EU, it lacks an efficient network of highways, especially multilane highways to the major ports. Road transportation is the preferred means of travel and physical distribution with 96 percent of all inland passenger transport and over 90 percent of inland freight transport conveyed by road. The balance is carried by rail. The 1,330 mile rail system provides passenger and freight services to most cities and main towns, including those in Northern Ireland. It primarily links Dublin with the other major urban centers. The national network of buses is far more extensive than the rail system. Dublin, Cork, and Limerick are the three principal ports, with Dublin being the principal one. There are numerous smaller harbors around the coastline. Ferry and freight services connect Ireland to the U.K. and Continental Europe. Major Infrastructure Projects Underway The Ireland National Development Plan, 1994-1999 only received official approval from the European Commission in June 1994. Details of projects receiving funding should be available before the end of CY 1994. The National Development Plan contains proposals to invest in transportation infrastructure, a convention center, and environmental projects. There may be opportunities for U.S. firms in these areas.