Brian Cowen (Laois-Offaly, Fianna Fail)

In my budget last December I indicated that the outlook was for a moderation in the rate of economic expansion this year. These forecasts took into account the transition to a more sustainable level of output in the new housing sector while more modest growth in some of our major trading partners was also built into the projections. In addition, I identified that there are risks to this outlook, including a less benign international economic climate and a possible continuation of financial market difficulties. As provision for a downturn was already built into my Department's economic forecasts, these have not changed from those published on budget day, when GDP growth of 3% was projected for this year, with GNP growth of 2.8%.

The European Commission recently published its annual assessment of the Irish stability programme update. The assessment highlighted the overall strong position of the public finances and pointed out that the fundamentals of the Irish economy remain sound. It referred to challenges in the transition to lower growth, mainly linked to a return to more sustainable output in the housing sector. This assessment is consistent with the view outlined in my recent budget.

The latest IMF forecast for Ireland was published in September last year, when it forecast GDP growth of 3% for 2008. Recently, the IMF published a paper entitled Spillovers to Ireland, which referred to Ireland's exposure to developments in the US economy. In this working paper, the IMF postulated that a 1% decline in US GDP growth would negatively impact by 1.75% on Irish growth. This analysis, which others dispute, does not take into account other factors such as lower import growth and, as such, I do not share its view of the severity of the impact on Ireland of any downturn in the US economy. However, as a small trading nation we are vulnerable to downturns elsewhere and as I have already outlined, slower growth in our trading partners has been factored into the budget day economic projections.

Ireland is meeting these challenges from a position of strength. The fundamentals of the Irish economy remain sound.

Additional information not given on the floor of the House.

Moreover, fiscal policy is playing a key role in terms of providing support for the economy as we enter this period of lower growth. Current spending is projected to rise by about 8% this year while tax revenues are expected to grow by around 3.5%.

Capital spending is expected to grow by around 12% this year as full implementation of the national development plan continues apace. Even allowing for all this, only a modest budgetary deficit is in prospect for 2008.

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