London-based economist Kevin Gardiner of Morgan, Stanley & Co. calls it "the Celtic tiger." Over the past five years, the Irish economy has been one of the fastest-growing in Europe, skirting recession and posting average growth of 5%. This year and next, says Gardiner, the pace could be even faster.
The key to Ireland's success is that it is an open economy that hews to balanced economic policies. Aided by heavy foreign investment, particularly in high-tech areas, exports have taken off. As a result, Ireland enjoys the largest balance-of-payments surplus relative to gross domestic product in Europe.
After being forced by the drop in the British pound to devalue its own currency at the start of 1993, Ireland has pursued restrained fiscal and monetary policies. The budget, excluding interest payments, is in surplus, and government debt as a percentage of GDP is declining. Inflation is being held under 3%, and the recent rise in British interest rates is putting upward pressure on Irish rates as well.
With high household savings, productivity growth averaging 4%, and modest negotiated wage hikes, the dangers of a serious upsurge in inflation seem remote. As its European trading partners shake off the dregs of recession, Ireland's export-led growth should accelerate and put downward pressure on its chronically high 15%-plus unemployment rate.