THERE IS now ample evidence that the Irish economy is experiencing a severe slowdown in its rate of growth. Employment in the construction industry is falling. Unemployment is rising. Government tax receipts are declining, a clear indicator that consumers and home buyers are becoming more careful with their spending.
Against this background, the Economic and Social Research Institute (ESRI) is now forecasting that the economy will grow by just 1.6 per cent this year. This would represent the lowest growth rate attained by the economy in two decades. The ESRI's growth forecast is not simply an esoteric, technical exercise. It has real consequences for real people. An economic slowdown of this magnitude will put a halt to employment expansion this year. It will cause unemployment to rise to 135,000 or 6 per cent of the labour force.
With a loosening of the labour market, the ESRI expects that the growth in wages will decelerate from 5.5 per cent in 2007 to 4.0 per cent this year and to 3.5 per cent in 2009. This projection of lower rates of pay growth comes at a time when the rate of inflation is rising again.
Figures published yesterday by the Central Statistics Office showed that the average level of prices has risen by 4.8 per cent over the past year. Even when mortgage interest is stripped out, the average level of prices has risen by 3.5 per cent.
Taking these pay forecasts and price trends together, there is clearly little scope for any appreciable increases in average living standards in the year ahead. Nor can those in work look to the Government for assistance. The public finances are drifting ever deeper into deficit. Economic realities must be faced. The longer they are ignored, the worse the consequences. But they must be faced first by Government. If there are hard times ahead this year, it is incumbent on the Government to chart a course for better times next year and to show how they can be achieved.
The economic outlook has deteriorated sharply since the 2008 Budget three months ago. Many of the adverse developments are external. Oil prices have risen steeply, adding to costs and prices. The US economy is on the cusp of recession. The dollar and sterling have fallen sharply. Commodity prices have soared, raising the price of basic foodstuffs. Credit conditions are tight in the wake of the US sub-prime lending crisis. At home, the house building sector is at a virtual standstill. Inflation, excluding mortgage interest, is running well above the Government's 2.4 per cent forecast for the year. The competitiveness of Irish output on both home and foreign markets has been impaired by domestic inflation and the strengthening of the euro. Jobs are being lost.
With the economic world turned upside down in 2008, there has been no substantive response from Government addressing the deterioration in the economic outlook and how it intends to face the future. Instead, it continues to cling to the outdated forecasts in the December Budget. It is time for a reality statement.