Coming on top of events in South-East Asia and Japan, recent developments in Russia and in some South American countries have undoubtedly raised questions about the future development of European economies - including ours.
From an Irish viewpoint, the problems facing East Asian economies this year did not initially seem too alarming, for only 8 per cent of our exports are shipped to that part of the world, and only 40 out of 1,200 IDA-aided companies here are Japanese.
Indeed, if the effect of an East Asian recession were to slow but not halt global growth, this might prove helpful to us in the short run. For it would reduce inflationary pressures and could help to head off a possible overheating of our economy - thus, perhaps, enhancing the prospect of a "soft landing" to our recent boom, and helping to ensure the continuance of long-term growth.
More recently, however, the scale of the Japanese financial crisis and its potentially negative impact on the US economy began to cast doubts on this optimistic view - doubts that have been strongly reinforced during the past few weeks by the Russian economic collapse. And more recently still, economic problems in some South American countries, which could have an even more direct effect on the US economy, have raised the spectre of a major world recession. If that were to be the outcome, there would, of course, be no soft landing for us.
There is absolutely no way of predicting whether these current crises across the globe will in fact lead to a controlled and limited economic setback in Europe and the United States - or to a world slump. We can only speculate on the uncertain outcome of the present crisis. We must be ready for either outcome - hoping for the best, but prepared for the worst. What seems clear, however, is that the immediate budgetary dilemma that had seemed likely to face the Minister for Finance this autumn has been eased. The case against using tax cuts on lower incomes to ease the path towards a further national pay agreement has clearly been weakened, because the risk of inflation and of overheating the economy is now reduced. On the basis of the more optimistic scenario - namely, a setback to the world economy rather than an actual slump - the next couple of years could see an easing of the growth of demand for labour here, which since 1993 has been rising at the phenomenal rate of 4 per cent a year.
That is twice as fast as the growth of employment in the United States - which is seen by many in Europe as a model - and is 10 times faster than employment growth in the rest of the EU during these recent years. (Although less than 1 per cent of all EU jobs are in Ireland, since 1993 no less than 8 per cent of the total employment increase of the EU has taken place in this small State).
Our unique capacity to cope with such an extraordinary growth of demand for labour has been a function of a coincidence of four distinct factors:
The cohort of our population which is completing its education is more than 50 per cent larger as a proportion of population than in the rest of Europe. Although female participation in the labour force has increased by one-third since 1991, the proportion of women outside the labour force, and thus potentially available for work, is still well above the European average.
Between April 1995 and April 1997, net annual immigration of people over 24 years of age averaged 12,000, and while figures for the past 18 months are not yet available, they are likely to exceed this level. The great majority of these join the labour force.
While unemployment has fallen by almost one-third in the past five years, 9 per cent of the labour force remains unemployed and in most cases available for work.
If, because of slower global growth, the demand for labour here falls off, how would this be likely to impact on each of these sources of labour supply?
It seems likely that the first impact would be on returning emigrants. A reduction in this inflow could cushion the impact of a recession upon school-leavers and the unemployed, and would also, incidentally, ease pressures on the housing market.
For housing demand emanating from returning emigrants has in recent years contributed significantly to the upward pressure on the prices of dwellings.
There must, however, be some risk that, even on the basis of this more optimistic scenario, the recent rapid decline in unemployment might eventually be slowed, or perhaps even halted, by a world recession.
In this connection we should remember that the successful recovery of our economy from the relatively mild recession of the late 1980s - a recovery that boosted employment by almost 50,000 during the course of the 12 months ended April 1990 - was halted in its tracks by the effects of German re-unification. During the following three years, employment here rose only marginally, and unemployment increased by almost onethird. We are, however, much better placed today to meet an economic downturn.
First of all, there is the fact that within three months from now our short-term interest rates will fall sharply. If, as currently suggested, the European Central Bank holds European short-term interest rates at their present German level, instead of increasing them as had earlier been expected, then this drop in our short-term interest rates at the end of this year will be very sharp indeed. Of course, if continuing global economic growth maintained our economic growth rate at 7.5-8 per cent, this sharp interest rate fall could prove inflationary - further boosting consumer demand and, in particular, contributing to further sharp increases in house prices. But if, instead, world growth is set back by these events, the interest rate drop could be beneficial rather than harmful - helping to sustain growth here - and also, incidentally, in other similarly-placed peripheral EU countries such as Spain and Portugal, where interest rates have also been high.
Another point is that the sustained growth of our economy since 1993 seems less vulnerable to a setback now than was the case with the much briefer recovery of 1989-90.
The flow of new external investment is now so buoyant that it currently exceeds our entitlement under the new regime negotiated with the European Commission, which, in return for allowing us to reduce our Corporation Tax rate on services to 12.5 per cent by 2003, limits us to 77 "greenfield" projects per year. Some of this year's investment projects are now going to have to be postponed until next year so that we can remain within this quota.
Thirdly - and this is very important - our budget is now substantially in surplus, leaving us better-placed than any other European economy outside Scandinavia. And our balance of payments are also in good shape, receipts having exceeded payments by about 3 per cent last year.
Thus, for the first time ever, our Government has the leeway and the capacity to reflate faltering domestic demand, and so to protect us to some degree from the worst effects of a recession. Any such move would, however, need to be very carefully judged - and timed. As suggested earlier, enough may be known by next December to enable the Government to effect the proposed reductions in tax on the lower-paid without fear of risking overheating the economy. But it seems unlikely that the global situation will have clarified itself sufficiently by then for it to be appropriate for the Government to go beyond this in the coming Budget by initiating serious reflationary measures.
Such measures could, however, be required during the course of next year. Given that public spending as a proportion of GNP has fallen fast and is now lower than elsewhere in Europe, overdue improvements in our public services and social provisions could then appropriately be brought forward - together, perhaps, with some additional tax cuts.
Of course, all this assumes that the worst that will happen is a temporary downturn in the world economy. If instead there were to be a world slump, we would suffer with everyone else; in such a situation we would be unlikely to be able to do more than mitigate the domestic consequences of such a collapse.
Some time will certainly elapse before we know which way events will turn out.