Economic outlook - Grim news, but no need to panic

TWO sets of figures released yesterday are so unusually downbeat that they might cause a moment’s pause even among the bravest of punters at Cheltenham for today’s unique, nine-race Gold Cup day.

In its quarterly economic commentary the Economic and Social Research Institute predicts GNP will grow by a mere 1.6%, the slowest growth since 1988. The figure is also much lower than those already suggested by prominent analysts.

If that prediction doesn’t unduly upset the Prestbury Park high rollers then Central Statistics Office figures, which show month-on-month inflation up from 4.3% to 4.8%, may remind them the reality is just around the corner and that they should enjoy the racing while they can. If they remain undaunted they might consider soaring oil prices — $111 at one point yesterday — and the collapsing dollar.

Though the figures are grim they are not unexpected and if the Taoiseach is right, and there is no reason to assume he is not, they just reflect difficulties in construction, and the rest of the economy is basically sound and need not be a cause of great concern.

Mr Ahern expressed his confidence just last week despite having to acknowledge disquieting tax revenues. Exchequer returns showed that, in just the first two months of the year, we produced nearly €€500m less in tax revenue than had been anticipated by Finance Minister Brian Cowen in his December budget.

These figures add to an already pessimistic prospect, which is augmented by the recent survey of managers in the services sector. It suggests that business is falling for the first time in five years. This data is worrying because these managers represent the fastest-growing part of the economy — or, if the survey was accurate, was the fastest-growing part of the economy.

If the property collapse is at the root of all of this foreboding then so be it. Even the most delusional developer or investor could not have imagined that things would continue at the pace of recent years. When normal service resumes, whenever that will be, we will see house construction bed in at about half its 2006 levels. And, reassuringly, house prices will rise in line with economic growth, which is what they usually do over the very long run.

These figures may bring pressure on Mr Cowen to “do something” but let us hope he doesn’t do something out of character and that he holds the line on investment in infrastructure and public spending.

If he does that any panic that might break out at Prestbury Park, however unlikely that is, will be just temporary. People will realise that we have a long way to go to return to the bleak days of 1988, when Charter Party, trained by David Nicholson and ridden by Richard Dunwoody, won the Gold Cup.