New figures from the Central Statistics Office show that economic activity grew by 4.1% in the 12 months to the end of June. This is lower that the 5% growth rate that the Government expects this year. It is also lower than the growth in the number of jobs in the economy which was 5.1%.
This could mean that the new jobs are lower productivity jobs than those of recent years, which could make it more difficult to achieve significant increases in living standards in the future.
CSO director Bill Keating noted that our economy is experiencing structural changes with employment in the industrial sector contracting while the number of jobs in the services and construction sectors continue to rise. But he pointed out that value created by workers was far higher in industry than in other services and this may be why the economic growth rate is lower than the growth in employment.
Bank of Ireland chief economist Dan McLaughlin noted that the new figures showed that demand from domestic sources in the economy continues to be strong, with consumer spending up nearly 5% and investment up by 11.4%. He added, however, that the contribution of exports to the economy was currently negative, though this could recover in the months ahead.
The observation that economic growth is now lower than employment growth is the opposite of Ireland's experience in the early and mid-1990s. Economic growth during that period was driving mainly by foreign direct investment and the expansion of the industrial sector which incorporated high-tech jobs. Today's figures suggest that the haemorrhage of high value added industrial jobs is now having an effect on growth, despite the fact that the country is creating almost 90,000 new jobs elsewhere in the economy.
The CSO figures showed that gross domestic product, which includes profits from multinational companies based here, expanded at an annual rate of 4.1%, compared with 2.1% in the first quarter. But growth in gross national product, which excludes profits from foreign-owned firms, slowed from 3.6% in Q1 to 3.1%.
A breakdown showed that growth in consumer spending slowed slightly to 4.7% from 5.2% in the first three months of 2005, but the pace of capital investment increased to 11.4% from 8.4%.
Industrial output showed annual growth of 2.3% after two successive quarters of declines. Net exports - exports minus imports - were €133m lower than in the same period in 2004. For 2004, the economy recorded GDP and GNP growth rates of 4.5% and 4% respectively.
Separate CSO figures show that the current account of the Balance of Payments continued in deficit in the second quarter of 2005 but at €1,171m was €268m lower than the €1,439m in the first quarter.
Goods exports picked up in the second quarter to €20.7 billion, while imports grew more slowly to €13 billion.
Net income outflows of €6,949m were at their highest recorded level, well up on the previous quarter. The CSO says this was partly because of higher profits flowing out of the country to foreign companies.
