Michael D Higgins (Galway West, Labour)
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Question 86: To ask the Minister for Finance if he will make a statement on his Department's recently published economic review and outlook for 2005. [26628/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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As is usual my Department published the annual economic review and outlook, ERO, in mid-August. The economic forecasts for 2005 contained in the ERO were based on data to the end of July. The ERO forecast was broadly unchanged in overall terms from that published on budget day, with growth in real GDP again forecast at 5.1% and growth in GNP revised upwards slightly from 4.7% to 5%.

The composition of the two forecasts, however, was different. The forecasts for domestic demand were significantly strengthened in the economic review and outlook. In particular, the forecasts for personal consumption and investment were increased as lead domestic demand indicators such as retail sales, tax revenues, etc. indicated the domestic economy was growing more strongly than anticipated on budget day. In addition, the projected increase in employment in 2005 was revised upwards on foot of strong data for the first quarter of the year. However, weaker than expected trade data and higher oil prices prompted a significant reduction in the forecast contribution from net exports. The forecast for growth in exports of goods and services was reduced from 7% to 3.9%. My Department will update the ERO view on budget day in December. Account will be taken of all published data since July when framing the budget day forecasts.

Joan Burton (Dublin West, Labour)
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Has the Minister read recent commentary indicating that the economy is softening? A number of forecasters have suggested a revised figure for economic growth of 3.5% for this year. What would be the implications of such a development? Yesterday's Exchequer figures, for instance, showed an increase of approximately €1 billion in VAT receipts, whereas revenue from corporation tax and income tax, once the special collections by the Revenue Commissioners are subtracted, is softening, particularly as regards the former. Has the Department carried out an analysis of the reason for the decline in corporation tax? What are the implications? While American multinationals are big players, what is the impact of the continuing strength of the dollar on the Irish economy, corporation tax outcomes, and employment in the multinational sector in this country?

Brian Cowen (Laois-Offaly, Fianna Fail)
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As the Deputy states, there are more downside factors coming into the equation on the international economic scene than would have been the case six months ago. The energy issue is certainly one of which people would be much aware. It is against a background of world trade growth, which is still strong when one looks at the emerging economies such as India, China and other Asian economies. The American economy continues to defy some of the odds, despite some downsides in terms of its imbalances, both fiscal and budgetary.

The point we would make is that this situation must be managed. This country is achieving growth rates much higher than our European counterparts. Officially, there is recession in Italy. There are the difficulties of high unemployment in Germany and France. Compared to some of these European economies, one aspect that is different in Ireland is the strong domestic demand and that is a stronger component in our growth than would have been the case previously. It is good that we have that domestic demand. Indeed, the Achilles' heel of the European economy is that they cannot generate any and that is having its effects on them in terms of higher unemployment — double our unemployment rate.

This is an issue which must be managed. The Department does only two forecasts in the year, one in August and one on budget day. If we were doing one every month one would take into account developing data all the time. As I say, we must wait for the final quarter and see what is the final issue.

On corporation tax the trend evident all year has been one of just about meeting the profile. In some cases, it is down.

On exports, we are seeing a reduction in the profile in terms of an increase, from 7% down to 3.9%. These are competitiveness issues of which we must be mindful and we must make sure, in the context of our social partnership talks and our policy responses to some of the higher energy environment issues arising, that we make the right choices. Unless we concentrate on increasing productivity and making sure we maintain our position in the international marketplace, we put at risk the volume of goods and services that we can provide which is the means by which we have generated the activity, created the revenues and created the jobs.

While the macro-economic environment is good in Ireland, there is never any room for complacency. As I stated, the downside factors have increased. The international environment is getting a little more difficult. The European economy certainly needs to take some strategic decisions, structural reforms that would greatly help us given the shape, nature and destination of our exports. It is an issue we must manage and certainly we are conscious of that as we prepare our estimates and budgetary position.

Richard Bruton (Dublin North Central, Fine Gael)
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Would the Minister comment on a concern of mine? Over a period a little longer than two years, exports growth rates have fallen from 15%-16% to 3% and the figures indicate that 40% of the extra employment has now been generated in the construction industry. The figures also indicate that in the housing market there is a significant volume of vacant houses. What worries me is that while our growth was driven traditionally by a strong export sector, with exports driving growth, we are now, as the Minister stated, in a position where construction is predominately driving growth. Is this a much more fragile basis on which to build our economic performance and must we be a little more concerned about the problems occurring in our export sectors?

Employment in export industries has fallen consistently for nearly six — certainly five — years. The IDA Ireland and Enterprise Ireland stable of jobs is falling off quickly. Is this a serious issue, that we need to get back the balance between the development of these critical export sectors based on technology and productivity, and the construction industry which is now dominating the scene? Clearly there are limits to the construction industry's growth.

Joan Burton (Dublin West, Labour)
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This brief supplementary question relates to Deputy Bruton's questions. Is the Minister concerned about what happened Hospira in Donegal? That multinational company made significant investments in plant in this country in recent times and yet pulled out at short notice with consequent enormous losses of jobs. Everyone must be concerned about the kind of marker that may indicate for the future.

Brian Cowen (Laois-Offaly, Fianna Fail)
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In reply to Deputy Bruton, the components of the growth are changing all the time. We have an issue with manufacturing industry about which we must be mindful, both in terms of international mobile investment which continues to be strong and in terms of the strategy Enterprise Ireland is undertaking in building more successes in the SME sector and in building bigger Irish companies. There is a strategic framework in place.

There is still a significant sector of our manufacturing industry which is low-paid, that is, between the minimum wage and the average industrial wage. There are a couple of hundred thousand people in the manufacturing sector from traditional industries which are with us since the 1970s and the 1980s, and much of our taxation policy has been geared towards trying to ensure that those industries are prolonged and remain with us for as long as possible. It points up the fact that there is no room for complacency. We all talk about building a knowledge economy. We must make sure that we take the necessary strategic decisions which enable that to happen to the greatest extent possible.

As I stated, there is no complacency on this side of the House in terms of the challenges that continue to face us. Among the public and some commentators, there is a view that the economy is on automatic pilot and it does not matter who is in here at all. The fact is we need a strong handle on the economic management of the country and we must watch for the competitiveness issues. One of the challenges of the social partnership process and dialogue into which we are entering this winter is to ensure that we focus on the need for more productivity in the exposed sectors to which Deputy Bruton referred so that we can generate the revenues to continue with the improvements in public services that we all desire.