Our economy is currently growing rapidly - not at quite the same rate as the Celtic Tiger period in the 1990s, but still at more than twice the rate that the economy of the rest of western Europe is growing - and even at a slightly faster rate than the average for dynamic eastern Europe, writes Garret FitzGerald
That's the good news.
However, there is another side. Our rapid economic growth used to be export-led, but for the past four years has been promoted mainly by a rapid rise in personal consumption. Inevitably, this consumer boom has been boosting imports, leading to a steady rise in our over-spending abroad, to the point where this year we look like spending on imports of goods and services 6 per cent more than we are likely to earn from exporting.
The truth is that we have been borrowing heavily to finance consumer spending on goods and services, while simultaneously we have been losing ground quite rapidly in export markets.
The inflationary impact of Charlie McCreevy's post-1999 budgets - which over four years increased prices twice as fast here as elsewhere in the EU - has seriously eroded the competitiveness of our exports, and since 2002 our share of world trade in goods has fallen steadily, and is now almost one-eighth lower than four years ago.
This recent persistent loss of ground in the world market for goods has been only partly offset by our exports of non-tourism services rising much more rapidly than goods exports - so that in the much smaller global market for services we have been gaining a little ground.
The winter ESRI bulletin has remarked on the phenomenal growth of the sale of business services abroad by Irish firms - an unexpected by-product of foreign investment in industry and financial services here,
Although growth in computer service exports, which had increased by 50 per cent a year between 1998 and 2004, has been sluggish during the past two years, nevertheless financial service exports now account for 25 per cent of all our export earnings, as against 10 per cent five years earlier.
But despite this rapid growth of service exports, our external payments deficit has now reached a level which, if we were not in the euro zone, might have required our public authorities to take deflationary action. It is true that insofar as this growing external deficit is a reflection of our investment catch-up process, which should be completed within 10 or 12 years, some essentially temporary over-spending abroad may be tolerable. But to the extent that the external deficit may be mainly due to a rapid increase in personal consumption, based on heavy personal borrowing, that would be worrying. It could, the ESRI suggests, eventually "translate into higher risk premia on loans in Ireland".
The ESRI says that it intends to return to this subject, and when it does so I will be surprised if it feels able to attribute most of the responsibility for our ever-rising external deficit to infrastructural investment rather than personal consumption. For consumption absorbs over twice as large a proportion of our output as infrastructural investment, and also has higher import content.
A second source of concern for the ESRI is the possible impact on Ireland of a slide in the value of the dollar against the euro.
Should the US economy continue to weaken - and the ESRI is expecting the growth of the US economy to drop back by over one quarter this year - and should the dollar itself also weaken significantly, the ESRI forecast of growth in excess of 5 per cent-plus this year could, it says, be almost halved
A third source of concern for the institute is the Government's budgetary policy. Despite warnings from the ESRI and other independent economists, last month's Budget was too expansionary and could have further inflationary effects.
Inflation was already running at 4.4 per cent in November and is now expected to be close to 6 per cent in the near future, partly, the ESRI says, because of the impact of indirect tax measures in the Budget.
Almost €200 million of indirect taxation has been needed in order to finance the reduction in the top tax rate for the benefit of higher-paid workers - which was included to keep the PDs happy.
Another factor that the institute cites as contributing to further inflationary pressures is the impending ESB price hike. This increase in electricity prices may in some measure reflect not merely the oil price increase, but also the Government's notable failure to tackle adequately and in good time the problem of competition in the electricity market.
Here, as in the bus sector, Government weakness in the face of union pressure to protect high-cost public monopolies, together with the commitment of some public servants to sheltering these concerns from competition, has denied consumers possible price reductions that would have been helpful keeping down inflation.
The ESRI has also returned to the subject of the need for independent and transparent evaluation of public investment, especially in the transport sector.
The ESRI bulletin contains a well-researched article on this subject by TCD economist Seán Barrett, to which I shall return in a future column.
A valuable innovation in this winter bulletin is its decision to make its own independent estimate of tax revenue, instead of depending on the Department of Finance's increasingly unreliable forecasts of how much taxation will be paid in the year ahead.
Over the past three years the Department of Finance has under-estimated tax revenue by between €2 billion and €4 billion each year - a cumulative under-estimation of over €8 billion. Of course, some error is inevitable in such estimates, but it should not persistently be as large as this.
Because using these too low Department of Finance tax revenue projections has in the past distorted the ESRI's forecasts of economic growth, the institute has done its own calculation of tax revenue in the current year, based on clearly stated and what appear to be entirely reasonable, although still cautious, assumptions. Their higher tax revenue estimate suggests that there will be a surplus of revenue over expenditure of about 2 per cent this year - in terms of what is known as the General Government Balance.
I believe that in 12 months' time the ESRI's revenue figure will prove to have been closer to the actual out-turn than the Department of Finance's almost certainly over-pessimistic forecast.