Study Says Ireland Ahead In 'New Economy' In Europe

Mandy Robinson, Tax-news.com, London

29 January 2001

Pricewaterhouse Coopers released the findings of a new study on Friday last week which looked at the extent to which a 'New Economy' may be emerging in Europe. The report concluded that Ireland is ahead of its European counterparts in terms of its overall potential to make gains from advances in information and communications technology over the next 5-10 years, stating: 'In Ireland, more than in any other economy in Europe, there is hard evidence that a new economy has arrived, boosting growth considerably in the second half of the1990s.'

Published in the latest issue of PWC's 'European Economic Outlook,' the study reports that growth in Europe and the United States has become significantly more stable since the early 1990s. Average EU GDP growth accelerated from around 1.5% in 1991-95 to around 2.3% in 1996-99, but this was found to be down to increased employment rather than any significant acceleration in investment or productivity growth.

In particular, stated the report, the contribution to EU GDP growth of information and communications technology (ICT) investment and productivity growth in the ICT sector was unchanged at around 0.5% in both 1991-95 and 1996-99. There is no evidence of a technology-led acceleration in EU productivity growth of the kind that several previous studies have found for the US in the late 1990s.

There is evidence of an ICT-led acceleration in productivity growth in the second half of the 1990s in a few of the smaller EU countries, notably Ireland, but no clear evidence of this could be discerned in any of the larger European economies, including the UK, although the report is optimistic that European economies will increase the quantity and effectiveness of their ICT and consequently seize the opportunity to exploit e-commerce to its full potential.

Rosemary Radcliffe, Chief Economist at Pricewaterhouse Coopers, states: 'Looking ahead, there is room for optimism that both the UK and Euroland will start to benefit more from the 'New Economy' but this does require other developments to support it. Clearly there is no guarantee that these developments will occur, or indeed that major adverse global shocks will not throw the European economy off course.'

She added: 'But at some point the normal process of technological dispersion should ensure that Europe gains to some extent from the recent technology-led acceleration of productivity growth in the US, just as the industrial economies of Germany, France and Italy gained during the post-war catch-up phase of growth in the 1950s and 1960s.'

The PricewaterhouseCoopers report also contains an updated set of forecasts for the Euroland economy, predicting that its growth rate will slow from around 3.3% in 2000 to around 3% in 2001 and around 2.75% in 2002. UK growth is similarly projected to slow from around 3% in 2000 to around 2.5% in 2001 and just over 2% in 2002. Furthermore, the report calculates that the tax cuts and interest rate reductions planned in many European countries for 2001 should protect them from the worst effects of a possible hard landing for the US economy.

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