The Government will welcome the latest review of the economy by the International Monetary Fund (IMF), which concludes that, while there are inflationary dangers, the Republic is "well-placed to continue to perform strongly in the future." In the measured tones favoured by the IMF, this is about as good as it gets. However, while the overall tone is positive, the assessment by the IMF executive board contains warnings about the need for budgetary restraint and for measures to cool the property market.
The relatively benign view of our economic prospects from the IMF is in line with the predictions of a number of prominent domestic economists, who have criticised forecasts - mainly from London-based stockbrokers - that the Irish boom must inevitably end in a bust. The central message of the Fund's report is that the economy can continue to prosper - albeit with growth slower than it now is - provided the correct policy options are chosen.
As an organisation the IMF has much experience - not all of it happy - in assessing and intervening in international economies. There is no reason to expect it to offer any extraordinary insights into our economic condition. However, its view will carry weight internationally and help to promote a positive view of our recent economic success.
Not surprisingly, given that much of its report is based on official briefings, the IMF's latest assessment generally follows the official Government line. It does not criticise the current direction of economic policy and argues for continued social partnership in running the economy. Inflation is seen as a threat and the IMF urges the Government not to be too generous in the Budget and to pursue tax reforms and competition policies to make the economy more efficient. Continued vigilance by the Central Bank is required in overseeing lending to property purchasers, it says.
The IMF does have some useful policy pointers. The next Budget should provide the tax concessions promised in the Programme for Prosperity and Fairness and no more, it says. Echoing recent advice from the Economic and Social Research Institute, it warns that a more generous package would only add to consumer demand and inflationary pressures.
This should be heeded by the Government. The 2000 Budget was overly-generous and the Minister for Finance should not make the same mistake again. There is a case for continued tax reform and for relief for the lower-paid, but not for another round of major tax reductions.
The report also contains other warnings. The housing-price bubble could rapidly reverse, the Fund says. And if wage and price inflation remains well above the international average, then economic stability could be threatened by a sharp rise in the euro's value, or by a breakdown in social consensus. The Government's job in the months ahead is to do what it can to bring the economy in for a soft-landing to a somewhat slower growth rate. Given that one of the key economic policy levers - interest rates - is now outside its control and that it faces widescale demand for extra spending and tax reductions, this will be no easy task. If the Government, perhaps fearing an early election, loses its nerve and starts throwing money around, then the risks identified by the IMF could quickly become more threatening.