IRELAND IS now in the grip of recession for the first time since 1983. This is the grim message contained in the latest economic forecasts published today by the Economic Social Research Institute. Moreover, the economy's emergence from recession will be slow, with a tepid growth rate of 1.9 per cent forecast for 2009.
The recession is real, not technical. The economy is set to contract in size this year, according to the ESRI forecasts. The most visible manifestations of recession will be the re-emergence of substantial net emigration from Ireland next year and a projected increase of 60,000 in the numbers out of work between 2007 and 2009.
The advent of recession creates major problems for the public finances. The combination of expansive public expenditure growth and declining tax receipts will push the Government accounts into the red this year. Worse is expected to follow. The Lisbon Treaty may not be Ireland's only difficulty with Europe in the year ahead. In 2009, the ESRI foresees the Government breaching the 3 per cent limit on budget deficits imposed by the EU Stability and Growth Pact.
The recession has arrived with unnerving speed. Last year, the economy grew by 4.5 per cent. This year, it is now forecast to diminish in size by 0.4 per cent. The economy's swift reversal of fortune has caught all off balance. In response, the first and most important step is for all to face the reality of Ireland's changed economic circumstances. The central reality is that living standards cannot continue to grow in the short-run. Recession means smaller and smaller means less. In recessionary conditions, any attempt by particular groups to advance their own living standards simply makes things worse for everybody else. One person's pay increase can be achieved only at the expense of another person's job. Where all seek to safeguard their positions, everybody ultimately loses as the resulting struggle over distributional shares destroys the economy's competitiveness. Those who experienced the 1980s have no desire to revisit that misfortunate decade.
The second response required by the crystallisation of recession is to protect the poorest in Irish society. Already, those with insufficient incomes to balance their own personal budgets have been hit with swingeing increases in the prices of basic necessities such as food, fuel and housing. Over the past year, inflation has been highest for the poorest in Irish society. Social protection for the poorest must be exempt from any forthcoming budgetary cutbacks by government.
Finally, the Government must wake up to the speed and the severity of the economic downturn. As economic conditions have worsened since the start of the year, there is a clear sense that no one is minding the shop. The Government needs to move quickly to assert its authority and increase its visibility in the economic sphere. It could make a start by refreshing its own outdated economic forecasts - unchanged since last December - recasting its budget projections for this year and telling the nation how it intends to chart a course from recession to recovery.