Hot spots: Ireland. (International Section).

Dr. Belcsak is president of S.J. Rundt & Associates, Inc. Telephone: 973/783-5206; fax: 973/744-3073; e-mail: info@rundtsintelligence.com; web site: www.rundtsintelligence.com.

Ireland will remain a growth leader within the European Union, but the days of Celtic Tiger performance are definitely over. The Emerald Isle's policy makers are aware that the current slow-down is not just cyclical but also has structural reasons they will have to address to keep the country moving forward as the European Union becomes a larger and more competitive bloc. First estimates suggest that real gross domestic product gained by less than 4.5 percent in 2002, for a substantial decrease from the 5.7 percent advance registered in 2001 and a real cave-in from the 10 percent-plus rates the economy had averaged for several years before that.

For Ireland, this spells quite a come-down, but not really a surprising one. The country used to benefit from a massive inflow of direct foreign investment, which over the last decade brought in a cool 23 percent of all the venture capital from abroad that found its way into the European Union -- a solid accomplishment for a nation with under four million people. In the process, though, the economy became overly dependent on the multinationals that were mostly responsible for driving its boom, and on the sophisticated products many of their factories turn out. When the high-tech bubble collapsed in 2001/02 and the multinationals were forced to retrench, this was bound to hit the whole economy.

Last year the country suffered its first decline in employment for almost a decade, with a net 4,000 jobs lost. For now, Irish companies are continuing to invest in research and development and are busily seeking out new markets and customers abroad. But consumer confidence weakened appreciably in December, according to a sentiment index compiled by the Economic and Social Research Institute, and the budget that Finance Minister Charlie McCreevy has unveiled for 2003 is one of the toughest the Irish have seen coming down the pike in quite a while.

In part, the household plan seeks to contain inflation, which is forecast to accelerate only slightly this year from the 5.0 percent measured in December (its worst in 18 months-and twice the European Union average). It assumes that real GDP will gain by just 3.5 percent this year and anticipates an exchequer deficit of 1.9 billion euros, the first shortfall since 1997. The scheme hikes excise duties on tobacco, alcohol and gasoline. It also aims to impose an annual levy of EUR 100 million on financial institutions for the next three years and to lay off 5,000 civil servants over this period.

The value of Ireland's seasonally adjusted exports to non-EU countries rose to EUR 2.71 billion last October from EUR 2.39 billion in September; but exports for the first ten months of the year were off by 3 percent from the comparable year-earlier period, to EUR 28.33 billion. Exports of electrical machinery were down by around 30 percent, while those of pharmaceutical products showed a gain of 63 percent. Imports fell by 7 percent to EUR 15.95 billion, but while this decline was instrumental in keeping the foreign trade balance strong, it underscored the difficulties of the domestic ...