It is said that the seeds of failure are sown at the height of success. Recent data shows that our economy has reached, if not passed, such a high point. Although good by European standards, recent growth in Gross Domestic Product - the value of goods and services produced in the economy - has been weaker than expected. And as our export performance weakens, growth is becoming more reliant on consumers, who in turn are borrowing more.
Next week the Department of Finance will publish its latest Economic Review and Outlook. This will be a timely opportunity for a realistic update of Government forecasts, taking recent trends into account. Among the key issues affecting the economy is its increasing dependency on the construction sector, which accounts for a much larger share of total employment than in other EU countries. As a forecast from Davy Stockbrokers pointed out this week, data on housing construction - which provides much construction sector employment - is not available for this year. If the housing sector is as important to the economy as many believe, this introduces unwelcome uncertainty into economic forecasts.
A second, related issue, is the sustainability of personal debt levels. Present levels are mostly driven by mortgage borrowing. This may be sustainable for a young population in need of homes. But for how much longer can growth in personal credit exceed 20 per cent per annum, and what will happen once this growth moderates?
And how would the Government's budgetary position be affected by slowing growth in the economy and in lending? Recent increases in tax revenue appear to relate to car purchase and housing activity - areas strongly related to borrowing. The mid-year Exchequer position is flattered by an apparent inability of the Government to complete public capital investment on schedule.
The economic impact of construction activity and related lending in our economy is worthy of a published Government analysis but, to date, the Department of Finance has refrained from addressing such questions. As well as demonstrating that the Government fully understands the economy, such analysis would inform important policy processes that relate to budget formation. For instance, talks on social partnership have recently commenced, with the Taoiseach signalling that increased spending will take priority over cutting taxes. 2006 is a pre-election year and it is worth remembering that in 2001, the year before the last general election, Government spending rose by 21 per cent without commensurate improvements in public service delivery. The second benchmarking exercise must ensure that any spending increases result in value for money.
Last but not least, increasing oil prices are drawing more attention to the rising costs of living and doing business in Ireland. The Government can do nothing about the price of oil. But it can start seriously tackling those sheltered sectors of our economy that are keeping the cost of living in Ireland at unacceptably high levels.