Activity was strong in the first half of 2007, but the slump in house building will slow growth substantially. GNP is expected to increase by 3% in real terms in 2008, which is considerably below the growth rate of potential output, but to recover to grow at 4.5% in 2009 as housing construction levels out at a sustainable level. Inflationary pressures will ease, but unemployment is likely to increase.

The Irish economy has transformed in recent years. It grew by 5.1% in 2005, half a percentage point faster than in 2004, driven by strong domestic demand and positive net exports. This continued the remarkable performance of the past decade, during which Irish incomes per capita have caught up with the OECD average. The forecast is for more strong growth in 2006-2007, with unemployment (4.2%) to remain relatively low.

Irishman Peter Sutherland has had quite a career in both international policy-making and business. From top jobs as European commissioner for competition policy and directorgeneral of the GATT, and founding chief of the WTO to chairmanships at Goldman Sachs International and BP, Dr Sutherland’s CV is indeed outstanding. So much so, in fact, that a new centre was named after him at Trinity College Dublin in December 2002.

Sir, you are right in asserting that the Irish economy is no longer the sick man of Europe (Observer 217/218, 1999). Whereas Ireland’s national income per head grew by just 1.8% per year for most of the 20th century, during the last six years income per head has grown by over 6% annually. Although the transformation in economic performance is relatively recent, the Irish economy is an interesting case study into the link between economic policy and growth.

Ireland, like the United States, is another place where times have been good. In fact, its average annual growth of 7.3% in 1990-98 was the highest in the OECD. Inflation is low and unemployment has fallen. Ireland has avoided some of the dips experienced by many other OECD economies too over the last decade. Its small open economy seems nicely balanced between the different business cycles of the United States on the one hand and the EU core on the other; whenever one has ailed, Ireland has been buoyed by the strength of the other. But this favourable disposition of the Irish economy does not explain the remarkable growth record of recent years.