ECONOMICS:BY 2010, the economy should be returning to its long-run growth rate of almost 4 per cent annually, the Economic and Social Research Institute (ESRI) says in its recent Mid-Term Review 2008-2015.

However, it's a long way from there to here. In the interim, the prospects for the economy are poor. Looking at the current performance of the economy, it is difficult to avoid the conclusion that conditions are going to get worse before they get better.

The economy has been running on empty for almost a year now. While real Gross National Product (GNP) advanced by 4.5 per cent in 2007, most of last year's growth was concentrated in the first quarter of the year.

Thereafter, the sharp contraction in construction dragged down the growth rate, as shown in Table 1. In the final three months of 2007, real Gross National Product fell by 2.2 per cent on a seasonally adjusted basis. This was the biggest quarterly fall in real GNP since the second quarter of 2001. Thus, the economy entered 2008 in an enfeebled state.

The economy has remained frail in the early months of 2008. The array of available statistics shows an economy characterised by slipping sales and rising unemployment. Moreover, consumer prices have been increasing faster than anticipated, swallowing up much of any additional purchasing power conferred by increases in money wages.

Total retail sales volumes in the first three months of 2008 were 0.2 per cent lower than in the first quarter of 2007, as can be seen from Table 2.

However, on a seasonally adjusted basis, sales volumes fell by 1.6 per cent between the final quarter of 2007 and the first quarter of 2008.

Much of the retail sales slippage is explained by the slump in car sales this year. In the four months ending April 2008, 106,307 new passenger cars were sold in Ireland, a drop of 9.3 per cent on the 117,174 new car purchases in the corresponding period of 2007.

When the motor trade is excluded, retail sales volumes in the first quarter of 2008 were 2.1 per cent higher than a year earlier. Again, however, they showed a seasonally adjusted volume decline of 0.7 per cent on the final quarter of 2007.

The weakening tenor of domestic consumer demand reflects three factors. First, the financial position of households has deteriorated. Second, consumers are increasingly fearful of the future. Third, employment growth, the engine of enhanced expenditure in recent years, is now at a virtual standstill.

Households experiencing unemployment have clearly suffered the most pronounced deterioration in their financial circumstances. Unemployment has been rising quite swiftly this year, using the numbers on the Live Register as a proxy for short-run changes in the numbers out of work.

Since the beginning of this year, Live Register unemployment has climbed by 28,100 or by one-sixth. Moreover, as might be expected, employment has been falling in the building sector.

In the first quarter of 2008, employment in construction was 10.9 per cent lower than a year earlier.

Even among households not visited by unemployment, times are tougher. The persistence of high inflation - consumer prices were 4.6 per cent higher in the first quarter of 2008 than a year earlier - is eroding the value of additions to money wages.

Mortgage interest rates are rising despite the fact that the European Central Bank has not increased its core interest rates for almost a year. Since the mortgage must be paid, rising mortgage interest costs are pre-empting discretionary consumer spending.

Above all, the slump in house prices has diminished the net worth of most ordinary households, where the home is the most valuable asset owned. Research has indicated that the "wealth effects" of rising house prices did not generate additional consumer spending during the housing boom.

However, the relationship between house prices and consumer spending may well prove asymmetric, with declines in the net worth of households quelling consumer spending growth over the next 18 months.

Besieged by rising prices, feeling poorer and fearing for the future, the prospects of an economic rebound in 2010 must seem a long way off to most households. The future, too, can be a different country. At this stage, the only certainty is that getting there will not be half the fun.