The economy is cooling but not freezing. The numbers at work continue to rise, though at a steadier pace than in 2006.
In the 12 months to the third quarter of 2007, employment increased by 3.3 per cent, or by almost 68,000, according to figures published this week by the Central Statistics Office. While this is a gratifying advance in total employment, the composition of jobs growth over the past year may presage difficulties ahead. For, over the past 12 months, part-time employment has grown much faster than full-time employment. In the year to the third quarter of 2007, the number in full-time work has risen by just under 31,000 or 1.8 per cent, whereas part-time employment has increased by 36,800 or 10.6 per cent.
These trends may be taken as indicating that, anticipating a weaker economy next year, employers are increasingly reluctant to add staff to their permanent payrolls. In taking this view, they are reflecting broadly the perspective of the main independent economic forecasters. The consensus among such forecasters holds that while the economy will continue to grow in 2008, the pace of expansion will drop to about 3 per cent. Against this background, total employment is projected to grow by a little over 1 per cent in 2008.
However, the slowing economy does not appear to be impairing the health or stability of the domestic financial and banking system. The 2007 financial stability report, published this week by the Central Bank, concludes that the Irish banking system continues to be well placed to absorb any adverse shocks and surprises. Perversely, the dampening of dizzying rates of growth, particularly in the housing sector, may have contributed to strengthening the domestic stability of the Irish financial sector.
A year ago, the Central Bank was troubled by the speed of growth in house prices, the associated rapid growth in personal credit and household indebtedness, and the increasing pressure of debt repayments on the financial health of the household sector. In the interim, all three of these pressures have abated. House prices are falling. The rate of personal credit growth, though still high, has eased, causing a consequent slowing in the accumulation of debt by households. And the capacity of households to meet debt repayments has stabilised due to rising real disposable incomes and the recent cessation of interest rate increases.
On the foreign front, despite continuing turmoil on international financial markets, the Central Bank says it is confident that the Irish banking system is not significantly exposed to the sub-prime sector.
Thus, on the evidence available from both the real and financial economies, Ireland appears able to avoid excessive turbulence as it descends from the high growth rates of recent years. However, the economy does not fly on automatic pilot. It requires a government to steer it successfully back on to a flight path of sustainable growth. On Budget day, the public will discover whether there is anyone at the controls in the cockpit.