Institute touches sensitive political issues

Analysis: With an election coming closer - and what with national politics getting more exciting and partisan by the minute - you might think that in making its latest economic commentaries, the ESRI would concentrate on the kind of boring, nerdy observations that would send us to sleep.

And as far as the meat and drink of the commentary's purpose is concerned - making forecasts - the latest quarterly appears to continue the "steady as she goes" routine: growth in gross domestic product (GDP) to slow from 5.7 per cent this year to 5.0 per cent next year, inflation to slow from 4 per cent this year to 3.7 per cent next year, employment growth to slow from 91,000 this year to 72,000 next year.

But asking economists to number-crunch without letting them put themselves about is a bit like battery hen farming: it's cruel and restrictive. Humane organisation that it is, the ESRI only employs free range economists and it gives them a fair amount of space to flap their wings from time to time.

Recent commentaries have warned about the dominance of the construction sector in the economy, produced evidence that public sector workers are paid 40 per cent more than private sector workers, and argued that, far from being a race to the bottom, immigration has in general been a boon to the economy.

All of these were highly sensitive issues with the potential to involve the ESRI in political debates that are about to emerge.

Yesterday, the ESRI again opined on the issue of immigration, but this time with a surprising twist. "Whatever we do, Bulgarian or Romanian immigration into Ireland is still going to be strong," ESRI economist Dr Alan Barret said.

With employment growth slowing, the economic context for Ireland's open-door policy is under question, he said.

Moreover, whatever the ESRI has said about the benefits of immigration, there might be such a thing as too much of a good thing, he argued. "Research in this area is in its infancy and there are a whole lot of unanswered questions."

At a steady pace of about 80,000 people a year, the recent strength of immigration into Ireland reflects the fact that Ireland allowed workers from accession states to come and work here without permits - one of only three of the 15 pre-accession countries to do so (the others were the UK and Sweden).

Although Bulgarians and Romanians are just as worthy as other eastern Europeans, the institute urges a wait-and-see approach.

It suggests keeping the doors closed for the moment until the state of our own economy - and the extent of migration from the two new countries - are better understood.

"We don't want to be seen to be going out on an anti-immigrant stance. What we're asking for is a pause in this very liberal policy," says Dr Barrett.

Immigration wasn't the only hot potato addressed yesterday and one of the others gives a clue to the reasons for the ESRI's changed thinking on the immigration question. Despite falling house prices, a consumer slowdown and slowing growth, the US current account deficit - broadly defined as the difference between what America buys and what it earns from the rest of the world - is running at 6 per cent of GDP.

This is a bad number, says the ESRI, because no-one can keep living beyond their means to that extent forever. As well as increasing military engagement around the world, the taste of US consumers for foreign-made goods - including many made in Ireland - is a key reason for that deficit. The trouble is that the only way to slake this thirst is to slow down GDP growth.

Bearing this in mind, the ESRI asked two questions. Question one: by how much would US economic activity have to slow to bring down its imports of goods and services to levels consistent with a sustainable deficit (of, say, 1 per cent of GDP)? Question two: what implications would that slowdown have for the Irish economy? The answer: our GDP - a measure of economic output of the domestically-owned side of the economy (ie not multinationals) - would contract by 7 per cent, wiping out more than an entire year's growth. As a result employment would fall by 90,000, doubling the rate of unemployment.

The latest ESRI quarterly commentary is not for chickens.