Our faltering economy - Discipline may restore our fortunes

THIS was not in the script; we thought recession was like St Patrick and his snakes. Gone, banished, never again to trouble us even if the Celtic Tiger had fled to pastures new.

Even if house prices were falling like trees along the Amazon and even if we suddenly and dramatically cut back on consumer spending.

Received wisdom was that after the oil crises of 30 years ago we had all hard-wired the lesson that inflation must be controlled. Independent central banks used interest rates to keep the supply of money in check thereby keeping the beast in its lair. The result might have been occasionally grim but the pay off was a stable economy and the potential that offered.

Yet, something has gone wrong. The recession, acknowledged by new Economic and Social Research Institute (ESRI) figures yesterday, is not on the scale of the 1970s, when inflation broached 20%. Nor will it be.

Growth is expected to fall 0.4% below last year’s level which “implies that Ireland will experience its first recession since 1983”, the ESRI pointed out. The ESRI expects consumption to slow to 1% this year, down from an average of 6% over the past three years.

Those assumptions follow two sets of equally sobering figures from the Central Statistics Office late last week. The annual rate of inflation went back up, from 4.3% in April to 4.7% last month. The other data reported retail sales slipped 3% in April. In the same month last year, sales in shops, bars and restaurants rose by 8% a year.

Yesterday’s publication has more than domestic consequences as it has “stark implications” for our commitments under the EU’s Stability and Growth Pact. The slowdown in tax revenue suggests we risk breaching the Stability and Growth Pact budgetary deficit limit of 3% of GDP. This year our budget deficit will work out at 2.8%, and rise to 3.9% in 2009.

So, one week a kick in the Berlaymont for our European friends and within days the prospect of having to dust off the begging bowl and ask for either yet another opt-out clause or a dig out.

One of the ways we can give ourselves a dig out is by holding the line in the forthcoming pay talks.

Any pay increases offered to public sector employees will have to be of the same scale as those offered in the private sector which are expected to be in the region of 4% this year and 3.5% in 2009. We simply cannot afford government-led inflation because we persist with a two-tier wage structure. One of the things we should not do is cut the barely adequate services to the most vulnerable in our society. The figures outline a challenging situation but nothing we cannot cope with. It is unlikely that we will return to the awful days of the late ’70s and early ’80s when it was easier to count how many graduates in a class stayed in Ireland than it was to count those who had to emigrate.

We should also look at what we have achieved and realise that, to a fairly large degree, what we have we hold. We are a rich, virtually debt-free country facing a recession rather than a poor country drowning in one.

This is a different Ireland, an Ireland that can look to its achievements rather than its hopes, an Ireland with a record of great development and innovation.

Though there is one great change in the last three decades — China and its appetites — there is nothing in these figures that need frighten us. By using discipline, imagination and the great confidence we have built since 1983, we will, in time, go a long way towards restoring our economy to the heady heights of recent years.