The Government will be happy with the latest commentary on the economy from the Organisation for Economic Co-Operation and Development. The OECD, which in previous reports expressed concern about the risks of economic overheating, now appears to have "bought in" to the Government view that the outlook is bright. It expects Gross National Product growth to run at 8.7 per cent this year, slowing only gradually to 7 per cent next year.
The OECD economists, previously critical of tax cuts, now point out that they are helping to encourage more women to enter the labour market and attract migrants back to Ireland, providing people to fill many of the jobs becoming available. A striking forecast is that the unemployment rate here could fall towards 3 per cent, which would be one of the lowest on record across the industrialised world in recent years.
The OECD economists have clearly spent some time examining the factors which have contributed to the recent period of strong growth. This is welcome, as much of the recent international commentary on the economy has not been soundly based. The EU Commission, for example, feels compelled to warn repeatedly about the inflationary threat facing the economy, but is short on advice on how to tackle it. Meanwhile the view in many of the financial houses in London is the simplistic one that the boom will inevitably end in a "bust".
There are, of course, serious risks facing the economy. The property market is in a dangerous spiral, there is upward pressure on wage levels and overall inflation is starting to pick-up. The greatest risk, as part of the OECD commentary recognises, is that competitiveness will be eroded if wages and costs to business here accelerate much more rapidly than elsewhere.
Rapid productivity growth should mean that the economy can endure a somewhat higher inflation rate than the norm. But if inflation does seriously take hold then it would undermine the economy's ability to continue to outperform the international average and lead to a gradual but sustained slowdown in growth. This is why it is so important that the terms of the new national agreement are, at least broadly, adhered to. It is also why Government action in areas like the housing market is long overdue; if this issue is not dealt with, then higher house prices will feed through to wage demands and higher inflation.
Some progress was made in implementing many of the recommendations of economist, Dr Peter Bacon, who is now completing another report on the housing issue for the Government. More now needs to be done - and quickly - to encourage an increased supply of building land and efficient planning and completion of housing projects. The Government must also give priority to the completion and implementation of its strategy for public transport; it has still, for example, to finalise its plans for the capital and is now seeking a consultant's view on the recommendations from the Dublin Transportation Office. And a huge agenda of providing better public services in areas such as health and welfare must also be addressed. These are key areas if the foundation is to be secured for a continuation of strong economic growth and for a society which provides a decent quality of life to its citizens.