As Budget Day approaches, there is both good news and bad - but it's mostly bad

The worst news is on jobs. In this week's economic forecasts from the Department of Finance, which underpin the budgetary arithmetic, the number of people at work in the Irish economy this year is expected to fall by almost 14pc compared with last year. For some context: in the two and a quarter years between the banking crash in 2008 and the bailout in late 2010, job destruction did not reach this scale.

There's plenty more bad news. Unlike the last recession, when the State was largely unburdened by debt going into the slump, the Government faces this downturn owing €200bn. That is about €40,000 for every man, woman and child in the country, a debt burden that is one of the highest in the world. This was never a good position to be in. It's an awful place to be in when ramping up public spending just as tax revenues weaken.

These stark realities are not bothering the political class much. Even among some of our smarter politicians, denial about debt is rife. The most remarkable manifestation of this has been the Government's decision to commit to €250m of increased expenditure - all of it borrowed - next year and every year into the future on public sector salaries. This is despite average public pay being far above that in the private sector.

This is all the more astonishing at a time when so many in the private sector have lost their jobs, have had their pay cut or fear losing their jobs. It is really quite extraordinary that money is being borrowed to pay those with the most secure jobs even more money at a time when the cost of living is falling (consumer prices fell by 1pc in August on a year earlier).

The Government's decision to roll over on this is being facilitated by the European Central Bank effectively printing money and giving it to governments to see them through the emergency phase of the Covid-19 nightmare.

This money-printing is due to stop in the middle of 2021. If that happens on schedule, eurozone countries will have to depend on private investors for their borrowing needs. Countries whose economies are weaker than the average and/or which have dodgy-looking debt levels could be in real trouble.

The discussion in the run-up to next year's budget is likely to be very different to the current one. Let us hope that it does not take place in the context of a ­government that has run out of money.

If the political class is hoping for the best right now, the wealth-creating class is fearing the worst. According to the Organisation for Economic Co-operation and Development (OECD) measure of business confidence across its members, Ireland had the weakest reading in August of any of its peer countries. Shattered business confidence means less hiring. It also means less investment in productive capacity. That will dampen recovery.

Why is Ireland doing so badly? As this column has said time and again since the pandemic struck, making definitive judgments on how countries have handled the coronavirus is unwise at this point. That said, it is hard to avoid the conclusion that the Irish Government's handling of the pandemic is a factor in weak confidence among wealth creators.

In many areas, Ireland has taken a more restrictive stance than other countries on what people and businesses can do. The shutdown of the construction sector at the height of the pandemic, for instance, was longer and more wide-ranging than in any other country in Europe. That was reflected in the deeper falls in employment and output in the sector in the second quarter than those suffered in any other country. There is no evidence of which I am aware to show that the extreme construction shutdown made any difference in slowing the spread of Covid.

With constant threats of further restrictions by members of the Government and their public health officials, it is little ­wonder that business confidence is shot.

At this point, I'm guessing that readers are desperate for some of the aforementioned good news. Happily, there is more of it than one might expect given the scale of the shock we have suffered.

Most Irish households and businesses, in contrast to the Government, go into this slump with their balance sheets in much better shape than in 2008. More than half a decade of strong and sustainable growth up to February had not been fuelled by credit, as happened in the years up to 2008.

The economy as of February was lean and competitive - again, very much unlike the economy of 2008. In recent years, growth has been driven by wise corporate investments and solid export growth.

Since the pandemic struck, many of those investments have come into their own. And none more so than the increased productive capacity in the pharmaceutical industry. This sector produces more physical goods than the other manufacturing sectors put together. It accounts for more than half of manufactured exports. As one might expect in a pandemic, it has boomed.

This has been the main reason that Ireland has had the strongest manufacturing performance and export growth of any country in Europe this year. Hopefully, these strengths will be enough to prevent Ireland falling behind the eurozone pack of countries next year. Being isolated and alone in 2021 will not be the place to be.