Like most economic forecasts, the latest predictions from the International Monetary Fund carry a mixed message. The positive news is that the IMF directors believe the economy has weathered the international slowdown "relatively well" and that the outlook for the second half of this year is "broadly favourable."
However the report also carries a clear warning about the deteriorating outlook for the exchequer finances and warns that increased spending in any area would have to be paid for by higher taxes.
Broadly, the IMF directors, in the report issued from their Washington headquarters, take a positive view of the economic outlook. Growth, as measured by the rise in Gross Domestic Product, should average 3.2 per cent this year, they say, with an acceleration in activity in the second half of the year.
However this relatively positive forecast comes with a health warning. The IMF cautions that recovery here is reliant on the expected pick-up in the international economy. As the IMF's own latest forecasts for the US make clear, such a generalised buoyancy cannot be guaranteed.
The second threat to the outlook here comes from the strength of the euro. Combined with high inflation and rising labour costs, the rising value of the euro could affect Ireland's competitiveness, the IMF warns.
The main concern of the IMF relates to the public finances. Here the warning is of a strongly worded concern over the "marked deterioration" in the medium-term outlook "which, unless checked, could risk Ireland's medium-term growth prospects." The IMF is not calling for major cutbacks; but what they are saying is that the exchequer position could rapidly deteriorate unless spending is quickly got back under control.
The public finances are indeed in a dangerous position. Spending, running at 22 per cent ahead of last year, is well ahead of a sustainable growth rate. Meanwhile the significant tax reductions of the last few years have reduced the revenue base. Budgetary policy over the past few years has been based on the economic boom continuing; unfortunately, now that growth has slowed to more normal levels, problems are surfacing. The Minister for Finance, Mr McCreevy and his colleagues, having enjoyed holding office during the good years, now face a much more difficult picture.
The implications of the current situation are clear. As the IMF points out, if higher spending is to be planned for next year, then additional revenue will have to be found. Given that widescale tax rises would be unwise, the priority must be on ensuring value for money from spending programmes - and carefully setting priorities, without causing a major dislocation of the economy.