In its latest Economic Review and Outlook, the Government is holding out hostages to fortune. It predicts that Gross Domestic Product (GDP) - the value of goods and services produced in the economy - will grow by 5 per cent this year.
This is in line with the forecast at the time of the last budget. But since then the Central Statistics Office has shown that GDP growth has fallen dramatically - from over 6 per cent in early 2004 to just 2½ per cent earlier this year. This begs the question: how can the Government's outlook and the latest data be reconciled?
The Government can take some solace in the steadier growth being experienced in the domestic economy. It is maintaining its optimistic GDP forecast by raising its prediction for growth in domestic demand, justifying this with reference to recent strength in employment growth. But employment growth has, to date, been heavily dependent on the rate of housing construction. This, in turn, has reflected high rates of growth in mortgage lending. There is a growing consensus that those lending rates cannot be sustained in the long run. On the back of this there is a valid concern about what will happen to domestic demand once lending moderates.
And there are few signs of comfort in the external economy. This week the CSO reported a sharp decline in exports in June. Coming in spite of euro weakness in the lead-up to that month, this indicates a continuing competitiveness decline, giving the National Competitiveness Council much to digest in its forthcoming annual report.
The next batch of data on the actual state of the economy will be released by the CSO in October. That data will relate to the second quarter of the year and show just how realistic the Government's latest forecasts are. It will account for this week's disappointing trade figures and rising oil prices as well as other factors.
There is some chance that GDP growth will rebound and justify the Government's latest forecast. But, on balance, it is more likely that its view of the economy will turn out to be overly optimistic.
The Government - via the Department of Finance - has erred in its forecasts before. But it has wisely done so on the side of caution, usually predicting a lower rate of growth than eventually transpired. The latest forecasts, and the data on the state of the economy that precede them, suggest that such caution has been abandoned.
For Government growth forecasts to materialise, GDP growth must recover in a sudden and sustained manner over the remainder of the year. If it fails to do so, a sharp and belated correction of the Government's view of the economy will be required. In this scenario, the Minister for Finance will have less room for manoeuvre to adjust his budgetary plans. The social partners will also have to adjust more sharply their view on the capacity of the economy to absorb pay increases.
The Government may have missed a valuable opportunity yesterday to lower expectations in an earlier, more managed and more stable way.