Analysis:Housing completions this year could fall below 40,000 units, the Taoiseach Mr Brian Cowen indicated in a speech to the business group IBEC tonight in Dublin.
Housing completions numbered 78,027 in 2007 and the Taoiseach noted that “The current indications are that the level of completions this year will be around half of last year’s level – an extraordinarily large turnaround in such a short space of time”.
There is no doubt that economic environment has deteriorated, Mr Cowen said, adding that “the scale and the speed of the adjustment is a concern”. Throughout his speech, however, Mr Cowen carefully avoided using the word recession.
The Taoiseach’s speech tonight comes against the backdrop of the Economic and Social Research Institute’s forecast on Tuesday that the country would experience a recession this year, with real Gross National Product (GNP) declining by 0.4 per cent.
Mr Cowen’s indication that the level of housing completions could halve this year is in line with ESRI projections. In its latest forecast, the ESRI anticipated that housing completions would decline to 40,000 in 2008 before falling further to 30,000 next year. The speed and scale of the decline in construction output is the epicentre of the Irish recession.
The Taoiseach indicated that swift action would be taken to correct the erosion of the public finances caused by the economic downturn.
Emphasising the need to recall the lessons of history, Mr Cowen noted “One very stark lesson is the rapid and heavy price to be paid for fiscal irresponsibility. It may be relatively painful to have to apply a corrective course to the public finances….The practical reality is however that unless necessary corrective action is taken promptly and appropriately, more painful adjustments….will inevitably follow”.
From a budget surplus equivalent to 3 per cent of Gross Domestic Product (GDP) as recently as 2006, the ESRI is now forecasting that the Government’s budget deficit will reach 2.8% of GDP this year before worsening to 3.9 per cent of GDP in 2009. Should the ESRI’s forecast for 2009 be realised, then Ireland would breach the 3 per cent budget deficit limit imposed by the EU Stability and Growth Pact.
But if Mr Cowen is for cutting, his commitment to the €184 billion National Development Plan 2007-2013 remains undimmed.
The Government “will continue to give the greatest priority to the implementation of the National Development Plan”, the Taoiseach said tonight. This implies that any forthcoming snipping of public spending will focus on day-to-day outlays rather than on capital spending.
On the current spending side, the Taoiseach said that priority must be given to protecting the most vulnerable in society and those who depend heavily on government spending programmes for support.
This suggests that income transfers and social welfare benefits will be largely exempt from any budgetary spending cutbacks.
Mr Cowen again stressed the need for pay restraint but told the top executives present at the IBEC President’s Dinner that they were not exempt from his advice.
Pay restraint should apply across the board, the Taoiseach said, adding “It is clear that the headline rates of pay increases for top level executives has not been aligned with this general message and this is a source of concern”.