"Our economic fundamentals remain strong" affirms Transport Minister Martin Cullen as 5 per cent growth is predicted by the Department of Finance's annual Economic Review and Outlook. According to Cullen, "once again Ireland continues to enjoy low unemployment, high rates of job creation, budgetary stability, low inflation and buoyant economic growth". Fine Gael Finance Spokesman Richard Bruton counters that beneath the healthy projection of economic growth there are worrying signs of vulnerability.
I agree with Bruton. There has been a sharp fall in exports, industrial productivity is faltering and the apparently healthy growth figures reflect an excessive reliance on construction and consumerism. Marc Coleman, economics editor of The Irish Times comments that it is the quality rather than the overall level of growth that matters.
What growth there is comes increasingly from domestic demand, driven in turn by consumption and construction. This in turn is related to strong borrowing growth. The construction sector, for example, accounts for a hugely disproportionate share of overall employment growth. This sector has peaked or is peaking and when it slows down it will take growth rates down with it.
The puzzle is that these trends are evident in various CSO data yet the government presses ahead with its bullish assessment and will not change its budgetary forecasts despite indications that all is not well. The fact is that we are facing rising oil costs, declining competitiveness and a slower pace of expansion in the world economy compared to this time last year. New CSO data that will be published in October could make the government's position look daft.
So why not revise the growth projections downwards-at least by a little? Surely it would make sense to dampen expectations in advance of the new wage agreements to be negotiated in the autumn? Perhaps this reflects Fianna Fáil's determination to fight the next election on the "it's the economy, stupid" theme. Earlier in the week, Social Affairs Minister Seamus Brennan reiterated that the government's management of a strong economy would be the main plank of the FF campaign. This might be a deliberate attempt at agenda setting to avoid having to defend its record of social policy failures, as the new conventional wisdom would have it.
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