Unemployment has reached 4.8 per cent, the highest level since July 2003, according to figures due to be officially released today. Deaglán de Bréadúnand Paul Tanseyreport.
The January figure of 181,000 in the number claiming benefit marks a rise of 7,000 since December. The increase since January 2007 is more than 22,000, or a rise of just above 14 per cent. The figure is ahead of the Government forecast for January of 174,000 and well ahead of the forecast monthly average for this year of 170,000.
Forecasters predicted a sharper rise in the numbers on the live register in January as construction firms failed to re-employ workers in the new year. But the actual increase is higher than many in Government expected.
Tánaiste and Minister for Finance Brian Cowen yesterday warned of further economic uncertainty, saying that a US recession "would not be welcomed anywhere, least of all in Ireland".
The US purchased almost 20 per cent of Ireland's merchandise exports and was the most important source of foreign direct investment in Ireland, Mr Cowen said. Against this background, he conceded that there would be "some adverse effect" on the Irish economy if the US slipped into recession, as many are predicting.
The expansionary Budget he had introduced for 2008 would help offset any external deflationary impulses, the Tánaiste said.
Speaking on the publication of the 2008 Finance Bill, Mr Cowen calculated that the fiscal stimulation delivered to the economy through his 2008 Budget stood equivalent to 1.5 per cent of gross domestic product (GDP).
On this basis, the Tánaiste has added proportionately more demand to the Irish economy in this year's Budget than US president George Bush injected into the US economy through his $146 billion (€98 billion) expansionary package. The stimulatory impact of the Bush fiscal initiative is estimated at some 1 per cent of US GDP.
Ireland cannot control the external environment in which the economy must operate, the Tánaiste said. In these circumstances, policy efforts should focus on minimising the impact of any international downturn by strengthening Irish competitiveness, enhancing productivity growth and improving the attractiveness of Ireland as a location for foreign investment.
Despite the economic and financial turbulence of the past two months, the Department of Finance would not be changing the economic forecasts made at the time of the Budget in early December, Mr Cowen said.
As a result, the department continues to forecast that real GDP will increase by 3.0 per cent this year with real GNP projected to rise by 2.8 per cent.
With the opening of negotiations on a new national pay agreement scheduled for later this month, Mr Cowen said that "it's very important we see the bigger picture of job security".
Euro-zone inflation has surged to a 14-year high of 3.2 per cent, strengthening the European Central Bank's case for resisting interest rate cuts even as growth slows.
In spite of sharp cuts in US interest rates by the Federal Reserve, the ECB is widely expected to leave its main interest rate unchanged at 4 per cent after its meeting next week.
