Bank of Ireland's Chief Economist Dan McLaughlin has predicted growth rates of 6.5% for the Irish economy. He says the country is in a state of transition, moving from the first Celtic Tiger period (1994 to 2000) when growth exceeded 9% a year to that of Tiger 2, with potential growth of 6.5% a year.
He points out that this is three times the euro area potential growth rate and double that of the US.
'Ireland will continue to pull ahead of its European partners in terms of income per head, and pass out the States within the next five years,' he says.
He says the 'extraordinary' growth rates of the Tiger 1 period was achieved through a combination of 3.7% annual productivity growth and employment growth of 5.5%. Employment growth averaged around 70,000 a year from 1994 to 2000.
The economy is now at full employment, so consequently, the economy's potential growth rate is now lower. A growth rate of 6.5% would be made up of 3.7% productivity growth and 2.7% employment growth, with the flow of workers now constrained by the growth of the labour force.
The Bank of Ireland economist says that immigration will play a greater role in Tiger 2 than it did in Tiger 1, averaging 30,000 a year. 'A larger proportion of these workers will come from the new EU accession states, which are not a competitive threat to Ireland, but rather provide a pool of potential workers,' he says.
He warns that a scarcity of labour will be the main constraint on Irish growth in the Tiger 2 era.
