According to the voxeu.org website, the economy and social Research Institute prospected a -0.4% GDP growth in 2008. While compared to the 2007’s growth of 5.3% and the previously reported growth rates since the 1990s, this would be a huge decline. Also going in line with these trends were the terms of trade movement leading to a real income rate of -2.6% in the year 2008. Recovery of the real income rates was projected and 2009’s rate would stand at 20%.
The basic cause for the economic decline was mostly attributed to the housing sector’s contraction resulting in a prospected fall of total investment by around 15% in the year 2008 and a further, decline of 4.5% in the following year. Despite this decline, the export sector proceeded in its growth, with a very strong service export. However, the export growth would be below the expectations due to the fall in the competitiveness of costs.The government’s fiscal policy was highly blamed for the GDP fall with the balance of government declining to 0.3% in 2007 from 3% in 2006. The projected level for 2008 was -2.8%. Especially notable during this period was the reduction in tax revenues in Ireland due to high dependence on taxes that are asset-based such as stamp duties upon transactions of housing. The stamp duties were little since there had been a slowdown in the market of housing as well as house prices. The decline in Irish, national index of house prices in real terms since January 2007 was 17.7 %. ( Lane, 2008)
Since the mid-1990s the economy of Ireland had a steady evolution. The external, as well as internal reviews regarding the Irish industrial policy, reflected high dependence upon FDI through weakly embedded. The industrial sector was not up to the desired international standards. Subsequent to these reviews, the main recommendations were that the economy should improve its capability technologically, upgrade its human capital and also provide an investment innovation conducive environment. (Remoe and OECD 2005 p 49)