Phenomenal growth since 1993 has transformed the Irish economy. During this period our national output has been boosted by 7.5 per cent a year, or 54 per cent in total, and average living standards by 37 per cent.
These increases in output and living standards are several times greater than anywhere else in the industrialised world. Indeed, apart from a couple of oil-rich countries, and perhaps Chile and Lebanon, the Irish growth rate of this period has no rivals worldwide.
It is, however, certain that this extraordinary rate of growth cannot be maintained. And, for reasons set out below, this would not necessarily be a bad thing.
One obvious reason growth is bound to slow down is that we are close to achieving full employment, our unemployment rate having been reduced by two percentage points within the past year. One-half of the current year's employment increase has been the result of unemployed workers getting jobs, and with unemployment now likely to fall below 5 per cent by early next year, this important source of additional workers is clearly about to dry up.
Furthermore, since the beginning of this year the number of young people attaining the age of 18 has started to decline, and within the next three years this number will fall by about one-seventh. That will lead to a significant reduction in the flow of young people from the educational sector into the labour market.
Finally, the recent substantial inflow of immigrant labour could also be affected adversely by the growing housing shortage and by the level of house prices; especially in Dublin, where unemployment is about one-third lower than in the rest of the State and where the demand for labour is greatest.
The only source of additional labour that might be capable of some expansion in the period ahead is the movement of women from working at home into paid employment.
This flow could be considerably enhanced by a combination of further budgetary measures designed to encourage the provision of childcare facilities, and major increases in child benefit payments designed to enhance the capacity of parents to pay for such childcare, without privileging parents engaged in paid work over parents caring for children at home.
Those two recently adumbrated policy changes could partially offset reduced flows from the three other potential sources of additional labour. However, if - as is clearly desirable - paid parental leave were also to be introduced, the additional inflows to the labour market arising from greater availability of affordable childcare would be somewhat reduced.
Half of our huge increase in output during the last six years has been attributable to an average annual rise of 3.54 per cent in output per hour worked, viz labour productivity. The rest has come from the expansion of the workforce. So, a sharp reduction in the growth of the labour supply must inevitably have the effect of reducing significantly our future rate of economic growth.
But we should not worry about this. Economic growth is not, as is sometimes suggested or implied, an end in itself. It is just a means to an end: to higher living standards and to better human welfare.
Lower economic growth, arising not from a slower rise in labour productivity but from an easing of the growth of employment following the achievement of effective full employment, could be positively beneficial, for it would reduce the strain on our grossly inadequate housing and transport infrastructure.
The trouble is that on this issue of economic growth it may be quite difficult to turn around popular opinion and public policy, both of which have for generations been focused on maximising growth and employment. And maximising is always easier than optimising, for no balancing act is required in maximising: one simply goes all-out to achieve the most that is possible.
Optimising, on the other hand - achieving a balanced outcome that is neither too much nor too little - is much more difficult. And a switch from maximising to optimising is now the difficult task facing our society, and our public authorities: how to ensure enough new jobs to maintain full employment, but not so many as to overstrain a limited labour supply. Few countries in recent times have had to pursue such a delicately-balanced economic agenda.
At the moment, however, we face a different problem: how to avoid a dangerous jump from moderate pay increases to rises that could destabilise the economy.
The Central Bank remarked this week that such pay increases could lead "eventually, perhaps, to some downturn, with the indigenous sector at particular risk . . . The higher rate of wage inflation relative to the UK in particular could have negative implications for indigenous industry".
Clearly the delicately-balanced situation of our indigenous manufacturing sector could easily be destabilised by the payment of excessive increases over the next couple of years.
But that does not mean there is no room for a more generous pay deal now than in earlier rounds. The national pay agreements of the 1987-97 period all involved an unusual degree of pay restraint, compensated, it is true, by income-tax cuts.
That was designed to facilitate the rapid growth of employment which was needed to enable our society to move to full employment, starting, as we then were, from a situation where one-sixth of the labour force remained unemployed, even after a period when for several years net emigration had been running at an annual rate of over 40,000.
However, the objective of full employment has now effectively been achieved. We no longer need to generate annual employment increases on the scale of the past dozen years. Indeed, to do so would be totally counterproductive, for it would merely serve to enlarge and perpetuate a scale of immigration that would keep our housing stock and general infrastructure under dangerous pressure.
And that, in turn, would generate unnecessary inflation which would be difficult indeed to cope with, given that we are now part of a wider currency area within which our currency cannot be revalued.
So a somewhat higher rate of pay increases could be an appropriate outcome of the negotiations that are soon to start. But somewhat higher, not very much higher. There is a real danger that, provoked by some runaway public service pay claims, private-sector workers could be tempted to seek and to secure pay increases capable of precipitating an actual downturn in the economy.
Of course, that is not the only danger that we face at this critical stage of our transition from a poor to a potentially rich country. There is also a risk that at a time when the economy is already showing signs of overheating, partly because of too-generous Budgets in 1997 and 1998, next December's Budget might push it over the top. In this connection the leaks about budgetary possibilities which currently seem to be emanating from Government sources are disturbing.
Yet another danger that some have foreseen is of a crisis precipitated by a downturn in property values. But the current Central Bank Bulletin is encouraging on this issue. A lengthy assessment of recent property price developments by two of its economists, Tom O'Connell and Terry Quinn, concludes: "The vulnerability of the Irish economy to events that might cause a large asset price reversal would seem to be relatively small . . ."
A point to which the Central Bank economists do not refer but which supports their conclusion is that very little building work is now speculative. Office development is almost all undertaken on a preletting basis and house-builders construct relatively small batches of houses, being careful not to run much ahead of demand. Thus, this time around, there is little risk of buildings, commercial or residential, being left on the hands of those who have constructed them.
Although interest rates remained high during the first half of last year, for the year 1998 as a whole the ratio of mortgage repayments to average household disposable income was still lower than had been the case during much the greater part of the past quarter of a century. And, despite the recent, more moderate, increases in house prices, the sharp cut in interest rates of the past year, and of mortgage rates in the past couple of weeks, will since have brought this ratio down to an even lower level.
Finally, the average size of mortgages in Ireland is low by comparison with neighbouring Britain, and the proportion of 90 per cent mortgages is particularly low.
For all these reasons the impending reduction in our economic growth rate is unlikely to lead to a significant drop in property prices, although it is certainly likely to moderate quite sharply the current rate of house price increases; a process that may, indeed, have already begun.
The "house-price bubble" theory, which has recently gained some currency, casting doubts on the durability of our growth cycle, seems to have little validity. And thus, if the pay situation can be prevented from getting completely out of hand, and if the Government does not go overboard in the December Budget, our economy has an excellent prospect of securing a "soft landing", moving fairly smoothly from a 78 per cent growth rate to a sustainable 56 per cent.