The exceptional degree of uncertainty attaching to our economic prospects in the short and medium term was highlighted by the Standard and Poors review of the Irish economy reported by Una McCaffrey on a business page of this paper last Monday, writes Garret FitzGerald
Standard and Poors believes that in a benign scenario, involving dwelling construction easing gradually, the downturn in the construction and prices of dwellings here could leave our growth rate next year at 3.8 per cent.
That, however, could be cut to no more than 1 per cent if the downturn develops on a scale similar to that following the housing collapse in Britain in the late 1980s and the initial impact on Germany of reunification in 1990.
Thus far, our housing readjustment has been moderate, and on that basis a growth rate of just over 3 per cent is projected for next year by the Minister for Finance.
But given the exceptional magnitude of our housing boom, it remains possible that the readjustment will be more severe, and, if so, that a slower rate of economic growth would continue for a number of years - below 3 per cent until 2013, Standard and Poors suggests.
The negative impact of the housing down-turn could, however, be considerably intensified if there were to be a steeper and/or faster decline in the dollar than is at present assumed by most economic authorities.
In this connection it is notable that the ESRI Autumn Economic Commentary has based its projection for the year 2008 on a $/€ rate of 1.40, and the Central Bank's just-published bulletin has based its more optimistic growth forecast on a $/€ rate of 1.37.
Yet, several months before 2008 has even begun, this rate has already reached 1.43, and is widely expected to go to 1.50 or above.
All this means that even if there is a soft landing to our housing boom, current projections of Irish economic growth in 2008 could prove to be on the high side.
Two years ago the ESRI published its last Medium-Term Review which presciently warned against these twin dangers to our economic growth.
First, it suggested that if there was to be a gradual US economic adjustment starting in 2007, the Irish growth rate in 2008 could drop from 5 per cent to 3.4 per cent, and that for some years thereafter our growth rate would be unlikely to exceed 3 per cent.
However, the institute also examined the additional impact on our growth rate of a simultaneous drop in Irish house prices.
If all home prices were to fall by one-third - which would be a much bigger drop than most people currently think likely - economic growth could, the institute said, drop within a year to as little as 1 per cent.
What all this adds up to is that the 2008 growth rate of 3.25 per cent upon which Brian Cowen is currently basing his budget could well turn out to be somewhat on the high side - and it is certainly unlikely to be improved upon.
Moreover, his 3.5 per cent growth rate for the years further ahead is unlikely to be improved and might not be achieved.
So the suggestion by one paper - not The Irish Times - based on a stockbroker economist's "expert analysis" - that "a tough budget is hardly justified" and that Cowen is playing down expectations as a part of a "cynical strategy to help Fianna Fáil win the 2012 election" does not stand up.
If anything, he could be criticised for erring on the optimistic side in his economic projections although, I feel, not unreasonably so.
The Minister for Finance can, however, legitimately be criticised for his party's totally unrealistic election programme, with its promise of cuts in the higher tax rate and PRSI contributions, on top of current spending increases and the expanding capital programme.
His emphasis at that time on his intention in the event of slower growth to give priority to the capital programme suggests that he was already aware then that the evolution of the economy was likely to make it impossible to implement all the promises, and especially those involving tax cuts.
Of course, the same strictures apply to the Opposition parties, who could have chosen a different path not open to the Government - discrediting Fianna Fáil's unrealistic promises.
Instead of pointing out that those pre-mises were based on a 4.5 per cent growth rate in the years ahead, which already in June appeared unrealistic, the Opposition decided to adopt this figure itself as a basis for its own equally-unrealistic promises.
The defence offered by the Opposition parties for this cop-out is that to have questioned in any way the economic skills of the outgoing Fianna Fáil administration would have been fatal for the Opposition.
This would have been at a time when the slowing of economic growth was not fully apparent to the average voter.
Yet that state of affairs existed only because between 2002 and 2005 the Opposition parties failed to highlight the damage the Government's policies were inflicting on the economy during those years.
What the Opposition parties should have been doing throughout that period - long before the 2007 election appeared on the horizon - was to hammer away at the following truths.
First, between 2000 and 2002, at a time when we were approaching full employment and were about to join the euro (which would fix our exchange rate vis-a-vis our partners), Cowen's predecessor Charlie McCreevy introduced three successive budgets which between them increased current spending by 45 per cent.
These uncontrolled budgets grossly overheated our economy, pushing prices up by over 19 per cent by 2003 - well over twice the inflation rate of the rest of the EU.
In the late 1990s, Irish consumer prices had been lower than anywhere else in Europe except for Italy and Spain. Between 2000 and 2005 our prices and costs rose so sharply vis-a-vis the rest of western Europe that many of our goods exports, as well as our tourism, lost competitiveness.
Since 1999, world trade has expanded by 50 per cent, but our goods exports today are only 6 per cent higher than eight years ago.
Thus we have lost almost 30 per cent of our share of the global market. As a result, since 2001 30,000 industrial workers have lost their jobs.
With that kind of factual material available, one would have thought an Opposition might have felt able to criticise the Government's record effectively, long before it had to face an election.
It did not do so, and the Government won that election apparently on the basis of its economic performance.