An international economic recovery is expected to get under way "some time in the first quarter of next year," according to the Organisation for Economic Co-Operation and Development (OECD).
However in its latest outlook, published yesterday, it acknowledges that there are risks which could yet delay the upturn. Some of these relate to the possibility of war in Iraq, while some spring from the unwinding of previous excesses as corporations and households reduce their debt levels.
An international recovery would obviously improve Irish economic prospects. The OECD points out that, internationally, activity "bounced back early in 2002, but then lost momentum". The economy here appears to have mirrored this trend, with some pick-up evident during the spring, but a downturn in activity - and confidence - subsequently. For Ireland to recover, the international picture must improve, as the small, open nature of the economy means we are heavily reliant on international trends.
A worrying aspect of the OECD forecast is the gloomy outlook for the euro zone. It predicts that this will grow by just 0.8 per cent this year and 1.8 per cent in 2003. This indicates sluggish growth among our trading partners. It also provides the clearest possible case for an immediate interest rate reduction of at least 0.5 of a percentage point by the European Central Bank. The worry is that the ECB may already have delayed too long before lowering rates.
In line with its international forecasts, the OECD also predicts a period of slower growth and gradual recovery in the Irish economy. GNP is forecast to rise by 2.5 per cent next year, rising to 3.3 per cent in 2004. It says that the Government needs to control spending and public sector employment to allow it to pay for infrastructural investment spending without a massive rise in borrowing. The National Competitiveness Council yesterday also highlighted the key importance of pressing ahead with infrastructural investment.
This is sensible advice, as is the OECD view that "there is no room for another national wage agreement based on tax cuts". However, as the social partners sit down to negotiate a new agreement, they would do well to heed the advice in a report from the National Economic and Social Council which is designed to provide a blueprint for partnership talks.
The report, due to be formally published shortly, argues that a "negotiated consensus" covering a range of issues, including incomes, is likely to be the best way of addressing both current economic pressures and medium-term challenges. There is surely a value in trying to develop some kind of formula for a new agreement, although clearly any deal must be seen to serve the wider interests of the economy. The international economic backdrop provides enough uncertainty, without this being added to by a return to an industrial free-for-all.