The period of extremely rapid economic growth, which has seen our national output rise by well over two-thirds within a seven-year period, is coming to an end. Nothing quite like it will be seen again in Ireland.
This extraordinary burst of growth was due to a set of circumstances that no European economy has ever before experienced. It came about because of a chance coincidence of demand and supply factors - on the one hand an unprecedented level of demand for labour in Ireland, and on the other hand a unique combination of demographic factors that served to expand the supply of such labour dramatically.
As 2001 begins to take shape it is becoming clear that, just as these two phenomena emerged simultaneously at the end of 1993, they are now in process of diminishing, also simultaneously.
In relation to the demand for Irish labour in Ireland what we are facing is likely to be a short-term rather than a permanent change in circumstances - reflecting the impact of the US recession. However, there is nothing temporary about the slowing of the growth of labour supply, which in fact contributed well over half of our quite extraordinary 8 per cent annual growth rate during the past seven years.
With the achievement last year of what is effectively full employment, the pool of unemployed labour upon which we have been drawing since 1993 has been exhausted. Since October last year the unemployment rate has fallen by only one-tenth of one per cent, to 3.6 per cent. It cannot fall much lower.
Moreover, the sharp fall in the birth rate that started 21 years ago is already beginning to affect the flow of young people from the education system into the labour market - a flow that will continue to decline until early in the next decade.
Nevertheless, our labour supply situation will in the period ahead still remain more favourable than elsewhere in Europe, partly because our birth rate, even when at its lowest, has still been well above the European average.
And there remain many Irish people abroad who would like to return home. If our housing market becomes less overheated with the slowing-down of our growth rate, they might find it easier to resettle here.
But while for many years to come we will remain better placed than our neighbours in terms of our labour supply, we will never again be able to expand our workforce at an annual rate of almost 5 per cent. The deceleration in the growth of our labour supply is coinciding with a temporary slowing-down in the growth of demand for labour.
Depending on how far this latter process goes, it could provide timely relief from the danger of serious inflationary pressures that would have arisen if labour demand had continued at its previous level in a period when we no longer had the labour supply to meet that demand.
If the US recession, both in its own right and indirectly through its impact on the global economy, were to have a disproportionate short-term effect on an Irish economy that is highly dependent on US high-tech investment, this could have serious repercussions on domestic confidence.
IF such a situation were to develop, the outcome would become unpredictable. The most vulnerable sector would be likely to be the housing market - and perhaps more generally the overheated construction sector. While a correction of excess demand in this area would at one level be welcome, it would be important to prevent that from developing into a slump.
That need not happen. Happily, we are well placed to avoid such a crisis, for we have a huge backlog of social housing needs, as well as a backlog of infrastructural deficiencies to be made good. And, at the same time, the Government has an exceptionally large budget surplus available to deploy on sustaining construction activity in such a crisis.
In a serious economic downturn, much of this surplus could quickly evaporate as tax revenues came under pressure. But skilful deployment of resources to maintain activity in construction would help to maintain demand, and thus tax revenue.
If I were in government today, I would be setting up arrangements for crisis management designed to ensure that in an economic downturn resources could rapidly be deployed to sustain any drop in demand in the construction sector. This would involve active preparations by the relevant government departments to have ready for tendering a sufficient flow of capital projects to sustain construction activity.
If the public authorities respond appropriately, an unnecessary downturn in housing activity can be avoided.
Finally, it would be important to mend fences with the European Commission, and indeed with other bodies such as the OECD and IMF, whose confidence in our economic management has recently been damaged. For if the Government is to be able to sustain construction activity during a downturn it would be important, following those unfortunate events, that such measures be understood by, and be acceptable to, these institutions.
If we get all this right, we should be able to avoid a serious recession.
gfitzgerald@irish-times.ie