Professor John McHale:

Let us think back to the boom years before the crisis. There were numerous deficiencies in the economy that we could have pointed to then as well. However, at the same time the economy was growing at greater than its sustainable rate and eventually we had a very sharp correction and a very deep recession. Economies can be in an unsustainable position where imbalances build up. Ultimately, this leads to a sharp downturn, even when we can identify serious deficiencies of the kind that Deputy Broughan has just described. They are separate concepts.

We look at a range of indicators for signs of overheating as well as competitiveness indicators, various housing indicators and credit growth indicators. We are continually monitoring for indicators that the economy might be overheating. We also have more statistical measures based on alternative measures to the output gap that the European Commission produces.

Is there a perfect measure? No. That is why we examine many different indicators. We have actually come to the conclusion that the economy is not overheating, or at least we do not see signs of it, even though the official measure used by the Department of Finance and the European Commission indicates that it is overheating. For example, although the unemployment rate has gone up a little to 8.2%, that level of unemployment would indicate some degree of excess capacity in the economy.

That level of unemployment would indicate some degree of excess capacity in the economy and is, again, another sign that the economy is not overheating.