Official statistics over the past couple of weeks have indicated that the economy is flat and that this is leading to an easing of inflationary pressures.
Growth, whether measured by Gross Domestic Product or Gross National Product, is very sluggish, unemployment is rising steadily and the latest consumer price index figures show a significant fall to an annual inflation rate of 3.1 per cent. One consequence is that tax revenues remain well below Budget, putting upward pressure on exchequer borrowing.
This performance must be kept in perspective. As a small open economy, the Republic is bound to suffer from a poor international environment. The combination of lacklustre growth in our main markets and a rising euro was bound to slow growth sharply here - and we cannot expect an upturn in domestic growth until the world economy lifts. Recently there have indeed been some signs of improvement internationally, although any recovery will be gradual and quite possibly uneven.
Better international conditions would improve the outlook here, raising the prospect of some pick-up in growth moving into next year. However the signs are that the latter part of this year and early next year will still be a difficult enough period for the economy, with unemployment continuing to rise and the Government facing difficulties framing its Budget.
This week the International Monetary Fund provided its prescription, involving holding down borrowing and tight control of current spending to leave funds free for capital investment projects. Taxes should be kept low, they recommended, and if more revenue is needed the strategy should be to broaden the base and introduce new user charges, rather than increasing tax rates.
The IMF's advice has much merit - no doubt Mr McCreevy, whose officials the IMF team would have met on their visit to Ireland, would agree with most of it. However there is also a need for a strategy behind the Budget sums. The challenge is to improve public services, fund capital investment projects and maintain the economic dynamism which the low-tax regime has helped to foster.
The urgency of infrastructure investment must be recognised in the Budget. The mid-term review of the National Development Programme, due this autumn, is the ideal opportunity for the Government to outline how it will fund major projects and, crucially, ensure they are delivered on time and at a reasonable cost.
The difficulty for the Government is that sluggish tax revenue and pressure on current spending from the benchmarking pay awards will limit Budget day resources. This is why a multi-year strategy for investment is essential, with funding from exchequer resources, borrowing and public-private partnerships. Otherwise, the risk is that capital spending will be cut again next year in an attempt to hold borrowing down, holding back the very investments essential to underpin long-term economic prospects.