The Fianna Fáil parliamentary party meeting in Cavan has heard Minister for Finance Brian Cowen warn about the budgetary consequences of rising oil prices.
The Government seems at last to have noticed Ireland's increasingly difficult economic climate: its recent forecasts appeared to ignore growing evidence of these difficulties. The Cavan meeting was presented also with a formal outlook for the economy. And as in recent years, this presentation was given by a private sector institution.
Such private sector forecasts - however competent - are produced for private sector purposes that do not have as their main objective an assessment of the risks to the Government's assumptions for the next budget. The Government does produce its own economic forecasts and as recently as last month it updated them. But in spite of already rising oil prices, it chose not to change its central forecast for the rate of economic growth unchanged. It also seemed to ignore evidence from the Central Statistics Office of slowing economic growth in the first quarter of this year, as well as of a poor export performance in its first half.
Other independent forecasters have been more cautious. The European Central Bank has lowered its outlook for economic growth in the euro zone. And in July the Irish Central Bank warned that economic growth would be affected if oil prices continued to remain high. This prudence was not only welcome, but was backed by statistical analysis with the Central Bank governor noting that if oil prices averaged $60 a barrel, this would lower growth by 0.5 per cent a year. The price of oil is now closer to $67 a barrel in the US having reached a peak of more than $70 last week.
The issue of economic competence looms large on the political horizon. As it does so, obvious questions present themselves. The first is why, unlike the Central Bank, the Government does not quantify the effects of different oil prices in its own forecasts. The second question is why, in presenting its assessment of the economy to its own parliamentary party members, does Fianna Fáil rely on private sector forecasts, rather than those it supposedly uses for budgetary preparation. Such questions are not academic. As regularly acknowledged in the economic analysis that accompanies the Government budget presentation, economic growth can be a source of surprise, affecting the room for manoeuvre in the budgetary process.
In issuing his warning about the impact of oil prices, Brian Cowen fears the next such surprise will be negative. As he attempts to influence his colleagues' expectations in relation to the December budget, the Taoiseach has strongly questioned the ability of Opposition parties to manage the economy. But the Government should get its own house in order first. This means ensuring the professionalism and prudence of its own forecasts. It also means having the courage to rely on them in the economic assessment it presents to its own backbenchers.