Ireland's 'Celtic Tiger' economy may continue to purr even if some of the roar has gone, says the economist who coined the term in 1994.
While "the economy won't grow at the same ferocious rate that it did over the last decade'', it "won't give up the gains of the boom'', says Kevin Gardiner, head of global equity strategy at HSBC Holdings Plc in London, who as a Morgan Stanley economist labelled Ireland a new "tiger'' economy to rival Asia's.
Ireland's growth was fuelled by a fourfold increase in property prices over the past decade. Now a €184bn government plan to rebuild roads, bridges and power stations, coupled with investments by companies such as Microsoft Corp, may help overcome a construction slump triggered by a real-estate reversal.
"To characterise the Irish economy in terms of what has happened in the construction sector is to totally miss the point of how this economy has developed over the last 10 years,'' Finance Minister Brian Cowen said yesterday.
Ireland's economy will expand 3.5pc in 2008 after 4.9pc this year, the European Commission forecast on November 9. While that's down from an average 5.3pc in the previous five years, it still beats the 2.2pc forecast for the euro region and the 1.7pc predicted for the US.
As in the US and Spain, the predictions for economic growth depend on Ireland's ability to weather a housing recession.
Home prices are falling after eight interest-rate increases by the European Central Bank since late 2005 doubled borrowing costs. Prices declined 1.3pc in October, the most in at least 11 years.
"The construction slowdown is overshadowing the fact that the rest of the economy is doing fine,'' says Alan Barrett, an economist at the Dublin-based Economic and Social Research Institute. "The pessimism is overdone.''
Stock market investors, though, aren't so sure. Irish shares are the biggest losers in the euro region this year.
The drop in real estate and building may be amplified by the euro's rise against the dollar and sterling, says Bernard Connolly, AIG Financial Products Corp. global strategist.
That threatens to slow export growth, with some companies, including Waterford Wedgwood Plc, the crystal maker, already hurting. Almost 40pc of Ireland's exports go to the UK and US.