Budget is not the only event that will shape our economic future

OBVIOUSLY the economic event that will dominate our thinking this week will be the budget.

But in reality there's little point in speculating at this stage on the minister's likely actions.

We should wait until we actually know what the minister proposes, before analysing the budget.

So we'll deal with this later in the week. In the meantime, it would be incredibly myopic to think that the budget is the only event expected in the week ahead that will shape our economic growth in 2003.

For a start, the European Central Bank (ECB) are scheduled to meet on Thursday in Frankfurt for their monthly debate on the appropriateness of Eurozone interest rates. For the past 13 months, these meetings have been non-events.

But this Thursday is going to be different. The ECB have received a great deal of criticism over the past year, for their apparent unwillingness to cut interest rates, when the Eurozone economy badly needed a growth stimulating rate cut.

However, in the ECB's defence, they were only adhering to their legally defined mandate of maintaining Eurozone inflation at 2%. Yet now the tide has turned.

The ECB has acknowledged that inflation looks set to fall below 2% in the early part of 2003, and now the market fully expects a rate cut this Thursday.

Recent ECB hints have been explicit by Central Bank standards, and realistically the only question which remains to be answered at 12.45pm on Thursday is: What size reduction will we see?

The market wants 0.5%, and I agree that a half-percent cut is merited. On a €200,000 mortgage, that is a saving of roughly €55 per month.

So, as discussed above, events beyond our own borders will have a sizeable impact on our economy next year.

For example, inflation in Ireland is already running at twice the Eurozone average.

It will only get worse before it gets better if money becomes even cheaper to borrow.

Yet this is the price we must pay to try and kick-start the Eurozone economy. Other positive news from Brussels last week came from Commission President Romano Prodi, when he announced possible reform of the Stability and Growth Pact.

This pact, while well-intentioned when drafted in the early 90s, has contributed in no small part to Europe's downturn this year.

By limiting the amount countries can spend when in recession, the pact risks prolonging any economic downturn as we are seeing in Germany presently.

Prodi is suggesting that the pact should be changed, to actually punish countries that spend too much when times are good, because this is when they should save for rainy days.

He also suggested that countries ought to be allowed to run deficits without penalty if they are actively upgrading their infrastructure.

This will be music to Minister McCreevy's ears as he looks to the next few years, as it will enable him to borrow to fund the National Development Plan without fear of incurring penalties from Europe.

And more good news was apparent further afield last week in the US. Let's not forget we are a small open island economy, heavily reliant on our external trading partners for our economic prosperity. There are roughly 500 US firms operating here alone, employing almost 90,000 people directly.

Also news from the US last week that two surveys of US manufacturing have both rebounded to levels that signal manufacturing is again expanding are heartening.

Niall Dunne, Ulster Bank