IT'S often been said that the best cure for poverty and unemployment is a job. But the reality of the modern Irish economy is that the best cure is emigration.
he Economic and Social Research Institute (ESRI) said yesterday that 100,000 people would leave Ireland this year and next, keeping a lid on already high unemployment and helping to relieve some of the budgetary pressures on the Government.
The loss of 100,000 mainly young people is hardly something to celebrate, but the reality is that without this safety valve the Irish economy would be mired in levels of unemployment last witnessed in the 1980s.
The ESRI calculated yesterday that if the amount of people in the labour market had not fallen over the last year via emigration, the rate of unemployment would be about 16pc not the current 13.4pc.
Ireland is shipping out its young people to countries like Canada, the US, Australia and the UK, thereby easing the pressure on the economy they are leaving behind.
Those departing are also easing the pressure on the Government in lower welfare costs and less political opposition. But the decisions of younger people are impacting on the economy in other ways too. For example, if they are not emigrating, younger members of the labour force are simply getting out of the jobs market entirely and returning to education.
There were 69,100 fewer people in the labour force in the fourth quarter of 2009 compared with a year earlier. More than half of this decline in numbers was accounted for by young people leaving the labour force, often for an educational opportunity.
However, having fewer workers chasing fewer jobs will only do so much for government economic planning. Stimulating or encouraging growth is also needed and the Government has only one real hope in that respect -- exports. The ESRI expects exports to grow by a very healthy 4.5pc next year as the world economy sidesteps a double-dip recession and trades its way out of the worst slump since the 1930s.
Export growth is important, but approximately 60pc of the Irish economy is powered by the consumer, who is heavily indebted. However, the ESRI believes the Irish consumer can shake off the debt shackles and increase private spending by 1.5pc in 2011.
This might seem strange when wages will still be dropping and interest rates more than likely rising thanks to the European Central Bank (ECB), but the ESRI was adamant yesterday that such a performance was possible.
A tighter monetary policy is probably the biggest threat to an Irish economic recovery and, while not emphasised too heavily yesterday, it is included in the quarterly report from the think tank. It envisages rates rising by 0.75pc in 2011 thanks to the ECB, but, of course, the scale of rate hikes won't be influenced by events here but by the big euro economies like Germany and France.
Rates remain something of an unknown variable, but the savings rate is equally something of a mystery. While the fear and risk aversion of 2008 and 2009 are no longer evident, the Irish population remains deeply scarred by recent economic turmoil and the precautionary savings remain high.
THE rate is likely to hover around 10pc of disposable income for some time, although Ireland's younger population should help the rate to ease in time. But ultimately forecasting the savings rate remains something of an inexact science.
The psychology of the Irish population remains deeply relevant to any recovery. Each one percentage point fall in the savings rate releases €1bn of private spending into the economy. But what makes people feel more confident?
Most economists would argue that a government getting on top of its budgetary problems certainly helps, but here the trends are less clear.
The Budget deficit will actually climb slightly in 2010 despite the spending reductions of last year. This is because taxation revenues are still falling and borrowing costs for the banks are also possible, even if the Government is trying to keep such borrowings to a minimum by using so-called promissory notes to fund Irish Nationwide and Anglo Irish.
The Government's long-term target is to get the Budget deficit back to 3pc of GDP. But nobody believes this is going to be easy, least of all the ESRI.
The organisation's highly-regarded research professor Alan Barrett yesterday refused to state categorically that the Government would get to the 3pc target demanded under the EU's Stability and Growth Pact, simply saying the Government's prospects were "uncertain".
The cuts in spending and the hikes in taxation will continue this year at a remorseless pace. Another €3bn will have to come out of the Budget, either in cuts or hikes.
The ESRI was slow to speculate on what precise measures were likely, but did speculate that €1bn in capital spending cuts were on the cards, supplemented by a property tax and further indirect tax increases.
This is going to be a very tough sell with a public already reeling from previous budgetary measures. The ESRI, like the Government, does not believe there is any other way to restore the budgetary balance.
However, Barrett agreed that previous attempts to balance the books, known as fiscal consolidations, were supplemented by devaluations of the currency.
That option is not open to us this time around because of euro membership, making the medicine the Government is administering even more unpleasant to swallow.
