The message from the Central Bank on the forthcoming Budget is clear. The economy is operating close to full potential and does not need any further stimulation from major tax reductions or increases in spending. A neutral Budget, the bank says, would help to limit the risk of domestic inflationary pressures in the period ahead.
The signals from the Government to date are that they broadly intend to heed the Central Bank's advice. The Government is committed under Sustaining Progress, the national agreement, to holding the increase in current spending to the nominal growth level of the economy next year, likely to be around 7 per cent. Meanwhile the signals are that while the Government will adjust tax credits and the standard rate band, it does not intend to announce major tax cuts on Budget day.
Recent signals are that the new Minister for Finance, Mr Cowen, might aim to hold the general government deficit - the EU borrowing measure - to around 0.8 per cent of Gross Domestic Product next year. This is probably a little higher than the Central Bank would wish to see, but not dangerously so.
However the important thing is for the Government to resist the temptation to further increase borrowing in order to afford a populist Budget. The lessons of the period before the last election are that this leads to a lot of wasteful spending and - when the economic cycle turns - inevitably necessitates a period of belt-tightening at precisely the wrong time.
The Central Bank report makes clear that the general economic outlook is favourable, provided international conditions remain reasonably strong. It is forecasting Gross National Product growth of 4.5 per cent this year and a pick up to 5 per cent growth next year, in line with other recent predictions from forecasting agencies. This would represent a remarkable recovery from a period of below-par growth and would maintain Ireland's position at the top of the euro zone growth league.
Naturally, the bank feels obliged to warn about the "significant downside risks", particularly rising oil prices. It is correct to do so. The international outlook is particularly clouded, not only because of rising energy costs but also because of the huge US fiscal and current account deficits which, as the bank notes, leave the US dollar vulnerable to a sharp fall.
The uncertain international backdrop is another reason for a cautious - though not a harsh - Budget. If growth were to slow next year, borrowing would be pushed upwards and the Exchequer finances must have some leeway to cope with this.