The ESRI Quarterly Economic Commentary published today portrays a grave picture of the Irish economy. The ESRI now expects the economy to contract by 0.4 per cent this year, the first recession since 1986. Living standards, as measured by GNP per capita, are expected to fall by 1.9 per cent. Perhaps most worryingly, unemployment is forecast to increase to 7 per cent next year.

Contrary to the impression that the Government has sought to present up to now, this is not the result of international factors. The dominant influence is the collapse in the house building sector – a boom/bust that was very much of the Government’s own making. That the bust should come now, at a time of international economic difficulties, only re-enforces the error.

It is now time for the Government to acknowledge the scale of the problem, and to act accordingly. It has been obvious for some time that the budget figures presented in December are redundant. A new set of budget forecasts, and a clear statement of budgetary policy for the medium-term is now required. To maintain confidence, it is important that the Government should be transparent about its true expectations for the exchequer finances this year, and about its real priorities in respect of the NDP.

I broadly support the comments of the ESRI about the need to avoid a rapid correction in the exchequer position. While the public finances must be returned to a sustainable path, moving too quickly now could make matters worse. What is needed is an orderly correction that reflects the ‘once-off’ nature of the construction downturn. The Government should avoid long-term damage to our economy that would result from delaying the National Development Plan.

Labour market policy, however, is a different matter. For months now, the Labour Party has been calling on the Government to address the needs of people loosing their jobs in construction and manufacturing. There is an urgent need for a major programme of training and up-skilling, if we are to avoid the re-emergence of significant long-term unemployment. The ESRI recommendations in this respect should be welcomed and acted upon.

The Government has been in denial about the deterioration in the economy for too long. There is an urgent need for a clear restatement of policy, and for targeted measures to deal with emerging problems.