As I stated in my replies to oral questions last week, all indications are that economic activity in 2009 will contract by significantly more than the forecast in the recent Budget with an overall contraction of perhaps somewhere in the region of 3 to 4 per cent.
At Budget time, I identified that there were significant risks to the economic and fiscal forecasts for 2008 and for 2009. The further deterioration in tax receipts in 2008, as seen by the end-November Exchequer Returns, the continuing weakening of consumer and investor confidence, adverse currency movements, continued difficulty in the international financial markets and depressed economic conditions, are all evidence of those risks materialising. The drop in the 2008 revenue take alone would push the 2009 General Government Deficit up by about €1.5 billion to 7¼ per cent of GDP. In addition, each 1 per cent decline in economic activity in 2009 beyond the contraction of 1 per cent already forecast would increase the General Government Deficit by about ½ per cent.
The Budget day forecast for unemployment next year was based on the assumption that while employment would decline, reflecting the contraction in activity, there would be some easing in the growth of labour supply, brought about by lower participation rates and lower rates of migration. Clearly if, as I have already indicated, the economy is now likely to contract significantly more than previously expected, this will have an impact on the outlook for the labour market.
Upon receipt of the end-year fiscal data and the latest economic data, including the third quarter national income data and December Live Register figures, a revised economic and fiscal assessment will be prepared by my Department in early January and brought forward for Government consideration. This assessment will reflect the dramatically changed environment now being faced.
In light of the further deterioration in the economic and budgetary situation, the Government is continuing to identify measures to ensure the sustainability of the public finances, while also focusing on areas that can expand the productive capacity of the economy. In this regard, the Taoiseach will shortly publish a programme for the renewal of the economy. The stabilisation of the public finances is the central immediate element of this framework.
