IMF Warns Economy Faces Slowdown
By Emer Mullins, Contributor
October / November 2001
The International Monetary Fund (IMF) has warned of substantial risks for the Irish economy as a result of the slowdowns in the U.S. and Europe, but has nevertheless painted a pretty favorable picture of Ireland in its annual review of the Irish economy.
The Irish Finance Minister, Charlie McCreevy, welcomed the report’s conclusions, as he saw them as a commendation of his own handling of the country’s finances.
But the economy is under threat from the general global economic slowdown, and the IMF highlighted two specific risks for Ireland: wage growth and a collapse in house prices. It said if workers’ expectations in terms of pay rises do not fall in line with economic conditions there will be excessive wage growth and an eventual loss of competitiveness. The IMF also wondered if national wage agreements may have outlived their usefulness in their present form.
“As the labor market tightens, agreements may become less effective in restraining wage growth to rates justified by productivity gains,” the IMF said. The group warned the government of the dangers of cutting taxes again in this year’s budget, due in December. Such measures should be curtailed through offsetting measures elsewhere in the budget, it said. It also fears that a collapse in house prices could put undue pressure on the Irish banking system.
The hi-tech sector seems to be in trouble, meanwhile, with computer giant Gateway announcing recently the closure of its Dublin factory with the loss of 900 jobs. Other computer and communications companies are also expected to make cutbacks as a result of the downturn in the U.S. economy. ♦