Spending must 'adapt' to slowing economy - Cowen

Public expectations for Government spending must "adapt" to deteriorating economic conditions as slower housebuilding acts as a drag on growth, Minister for Finance Brian Cowen said yesterday.

Addressing an insurance conference in Dublin, Mr Cowen said he was confident that the economy was "in good shape" but said complacency was dangerous.

"We need to be conscious of developing trends so we can take the necessary measures to deal with any emerging problems," said Mr Cowen.

His comments are likely to fuel speculation that he is preparing a tough budget for December. Figures released earlier this week suggested that the Exchequer could be in deficit by more than €1 billion at the end of the year, €500 million more than the Department of Finance had expected. This would reduce the pot of money available to Mr Cowen for budgetary measures.

The Minister pointed to indications that the short-to medium-term economic outlook has "deteriorated somewhat", blaming "prospective developments in the new housing market".

As housing activity slows, more focus must be placed on achieving growth through exports, Mr Cowen said.

"This highlights the importance of improving the economy's international cost competitiveness," he added.

The Government will play its part in this, Mr Cowen said, by continuing to implement a "prudent" fiscal policy. But the public must also play its part, he said. "It is essential that public expectations adapt to the emerging, more sustainable growth in available resources," said Mr Cowen.

He told delegates at the Insurance Industry of Ireland conference that high inflation could do "irreparable" damage to the Republic's international competitiveness.

"We all have to be realistic in our expectations and acknowledge that wages should, at most, rise in line with productivity," he said.

The Government will, he noted, continue to prioritise spending on areas critical to long-term competitiveness, particularly under the National Development Plan.

"This investment - in infrastructure, education, science and innovation - is designed to equip Ireland to meet the challenge of a rapidly changing global economy," the Minister said.