What’s in store for the Celtic Tiger?

In exploring the medium-term prospects for the Irish economy, this article argues that a pessimistic scenario, in which the rapid growth of recent years inevitably ends in a crash, is not plausible. But neither is it realistic to expect a continuation of "Celtic Tiger" growth rates. Under Irish conditions, GNP growth in excess of 3.5% a year leads to fall in unemployment. When "full employment" is reached, further reductions in unemployment lead to rising wage inflation. In the absence of an exchange rate adjustment, high wage inflation leads to a loss of competitiveness. This acts as a break on growth. For these reasons, the realistic medium-term prospect for the Irish economy is that the growth rate will revert to its long run average in the region of 3.5%.