THE COUNTRY'S largest trade union has said the economic downturn can be attributed more to the inability of workers to pay for goods and services due to falling earnings than a reduction in "consumer confidence".
In an economic assessment, published yesterday, Siptu said living standards for workers had remained effectively frozen over the 27-month period of the current national pay deal, while in the last year there had been an actual decline in the real value of earnings in the public and private sectors.
Siptu head of research Manus O'Riordan said it was this decline in the real value of earnings that was leading to a downturn in consumption. "Unless this decline is reversed, a total slump in consumption will threaten economic recovery next year," he said.
In its assessment, Siptu backed the ESRI in suggesting that a strong case existed for breaching the 3 per cent borrowing guidelines in 2009. The union also warned against "panic cuts" being imposed by the Government to deal with the current economic situation.
It also said it would be "most inopportune" to introduce carbon tax as proposed in 2010. The union highlighted the issue of fuel poverty as a result of rising prices and said "the climate change challenge should not be addressed in a way that would aggravate this problem".
Siptu said the Government needed to hold firm on National Development Plan (NDP) investment commitments in relation to workers as well as physical infrastructure as it estimated that the downturn in the housebuilding sector would be worse than that forecast by the ESRI. However, it said the top priority for NDP investment projects had to be those concerned with the training and upskilling of workers.
Mr O'Riordan suggested that if hard choices had to be made, projects such as the planned metro for Dublin could be deferred. Siptu also projected that the consumer price index would be closer to 5 per cent for the whole of this year rather than the 4.5 per cent forecast by the ESRI.
"We do not believe that the CPI will dip below 4.5 per cent until the latter half of 2009. Average inflation for 2009 as a whole is, therefore, more likely to be above 3.5 per cent than the 3.0 per cent currently being forecast by the ESRI."
Mr O'Riordan also maintained that labour costs in Ireland remained highly competitive, with EU statistics showing the country ranked 10th out of 12 countries surveyed and that labour costs were only 80 per cent of those in Germany and the UK.
Siptu said the ESRI had forecast a modest return to 2 per cent growth in the volume of consumption for next year.
However, it said that if the ESRI had underestimated the rate of the consumer price increase for next year, and had not adequately factored in the rate of wage increases required to ensure there would be a recovery from the decline in living standards under way since last year, its forecast would not be forthcoming.