IN ITS quarterly report yesterday the ESRI didn't pull any punches. There has been an "alarming" rise in the numbers on the dole, the state of the public finances is "disastrous" and Gross Domestic Product will decline this year and next year.
The report is apocalyptic but not that surprising and not exactly brimming with fresh insight. The Central Bank was similarly gloomy last week. Indeed, it could be argued that the ESRI has based some of its forecasts on comparatively optimistic assumptions, especially as regards the non-construction sector. Some economists may wonder if unemployment will increase to only 180,000 next year given the severity of the headwinds which our manufacturing sector will have to navigate.
Minister for Finance, Brian Lenihan, would do well, as he drafts his first budget, not to fall into the trap of erring on the optimistic side and allowing that optimism to get embedded in his budget provisions. The problems affecting the economy are grave and urgent and there are no short-term solutions.
Since the founding of the State, the level of unemployment (and resultant emigration) attained totemic status in any discussion of our economic progress. The arrival of virtually full-employment in the last decade was rightly regarded as a momentous achievement which finally established the State as a successful economy to be admired and imitated. Now the situation is the opposite. Unemployment will now reach 8 per cent next year - at least - and up to 30,000 people will leave the State. The appalling spectre of involuntary emigration looms large once again.
The ESRI expects that the budget will have to include spending cuts and taxation increases which, together, will take a combined €3 billion out of the economy. This can only serve to add to the contraction. Mr Lenihan may be tempted to push through measures that would give some relief, albeit short-term, on unemployment. If so, he should resist them. He must have only one priority in this budget and that is to devise a credible plan to restore the public finances over the medium term. Short-term measures to tackle unemployment, no matter how desirable politically, would not gel with putting the public finances to rights.
Similarly, there may be a temptation to propose measures which might improve the chances that the Irish Congress of Trade Unions will approve the Towards 2016 Transitional Agreement on pay and workplace issues. Of course, Mr Lenihan should be mindful of the need to protect the unwaged in particular and the nearly 200,000 employees who earn less than €10 an hour. However, he would be deluding himself if he believes that any such measures, no matter how warranted or welcome, will influence congress delegates.
A restoration of the public finances will pave the way for improvements in output and exports and a reduction in unemployment. Mr Lenihan must ensure that future economic growth is at a sustainable level and not overly dependent on any one sector; something his immediate predecessors failed dismally to do.