Dr. Tom McDonnell:

That is a very good analysis. In terms of where the savings are located, the Central Bank has done some analysis on this. It has found that they are disproportionately in the hands of the wealthiest households, by and large. The distributional gains have benefited the people towards the top of the distribution. A lot of the gains of the increasing net wealth, of course, are associated with the increase in house prices. Obviously, if someone is a homeowner, their wealth is likely to have very much increased over the last few years. If they are a renter, on the other hand, they are continuing to fall further and further behind. Indeed, the figures that we showed, and that are clear from the CSO, have that big divide in terms of homeowners versus renters as being a winner-loser dynamic.

Obviously, if one is in the middle and one half-owns one's house or one still has a mortgage, one is in a more mixed position at the moment because of interest rate increases.

As to why we think the economy is overheating, I would caveat that a little. Broadly, employment rates have never been higher overall, our hours worked have never been higher and our unemployment rate is very low by historical standards so ostensibly, that screams an economy that must be overheating. However, an economy can be overheating and have a mixed outlook ahead. The concern is that we are towards the top of the cycle. If we do fall, that would imply that there was indeed scope for a more inflationary budget. Possibly none of the downside risks will actually come to pass. That said, some of them have already come to pass in terms of higher interest rates. Hopefully the ECB will not go any further in what it deems is necessary because it has certainly been damaging to the economy. If we are moving away from a position of overheating that would certainly justify a more expansionary budget than one based on an overheating analysis. However, capacity constraints are still there at the moment and that has implications for value for money from infrastructure spending, for example. I personally think that infrastructure spending should be, and needs to be, increased and that we can increase the number of construction workers that are available. We cannot just say, "There are no construction workers". If construction is significantly attractive as a career for people, over a two to four year period people will go into it. That is the labour market responding, with people coming through the system. People will come into Ireland and so forth. Obviously, the housing crisis creates particular issues in terms of people coming into Ireland because the houses are not there, which is a chicken and egg problem.

The Deputy is right that employment numbers are generally not considered to be a leading indicator. Generally, if a business realises it is doing badly, it might start to cut back on investment first of all. One starts to see it in the performance indicator monitors, PIMs, and the confidence indicators and almost as a last step will workers be let go. Most employers do not want to let people go, particularly at the moment when we have a tight labour market. They may feel that if they let people go they will not be able to get them back because they will be able to walk into another job. In that sense, employment is usually considered a lagging indicator. The impacts of monetary policy are also considered to be something that happens with a lag and that lag can be anything from six to 18 months. That is a very large range because monetary policy is essentially a hammer. It is hammering down on the economy and hits certain households very badly while having almost no impact on other households. We are not experiencing the full consequences of the interest rate rise as of yet. It is likely to have a downward impact on investment and consumption and so forth.

To go back to the overheating issue, one could argue that inflation is a supply-side phenomenon. That is true to a large extent in Europe whereas it is more of a demand-side phenomenon in the United States, although now we are starting to see demand-side impacts as well, with prices ratcheting up because of that. There are high levels of demand in the economy, higher than they have ever been. That will inevitably have an effect. If people are going to restaurants and hotels, and it is generally people with high levels of savings who are doing that, that is creating extra demand.

There is no objectively correct answer to the Deputy's question. Our analysis, although Mr. Nugent may have a slightly different view, is that we are at a position of capacity constraints which would imply overheating. At the same time, however, I am saying that the forward-looking outlook may change. What I am telling the committee is that I think we are here, there is a concern that it might go down but that is not a guarantee. I do not mean a recession; I simply mean that we will glide down to lower levels of growth. That said, a recession is always a possibility but I am not quoting myself on that at the moment. Mr. Nugent may have something to add to that.