Last month, in the face of all of the evidence to the contrary, the ECB increased official eurozone interest rates.
It was the second time it has done so this year. What looked pretty damned peculiar at the time now looks utterly insane. Well the good news is that the ECB has now been forced to put its plans for further interest rate increases on hold and the next major move in interest rates is likely to be down.
As the crisis has continued to worsen there are growing indications that the global commodity price bubble may be about to burst. And it isn't just energy prices. In recent months the prices of most other commodities including food and metals have also reached record levels. Now, with signs of a global economic slowdown becoming increasingly apparent, the bubble looks set to burst. Already oil prices have fallen from a recent peak of $125 a barrel to $107. Other commodity prices look set to follow suit. This will lead to lower prices at the pumps, cheaper supermarket prices and, eventually, reduced gas and electricity bills in the months ahead.
Amid all of the gloom of recent years one of the few bright spots has been the outstanding performance of the Irish export sector, both multinational and indigenous. If as seems likely, the current market turmoil signals a global economic slowdown, then demand for Irish exports will fall in export markets and the growth in Irish exports will stabilise or fall.
Lower tourism growth
Along with exports, tourism has been the other good news story coming from the Irish economy in recent months. A combination of plenty of cheap flights and bargain basement hotel prices has brought the tourists back. Ironically all of the otherwise bad publicity about our economic plight has also helped the tourist industry with foreigners being tempted to visit this country in search of a bargain. A global economic recession, which took even more money out of international consumers pocket would hit the tourist industry hard.
Even more tax increases
The Government's four-year plan is predicated on average economic growth of 2.75pc in the four years to 2014. Even at the time these forecasts looked wildly optimistic. They look completely impossible now. With the world economy headed into a renewed recession Irish economic growth is going to fall well short of the targets set out in the four-year plan. With the four-year plan relying on economic growth to deliver almost half of the €11bn increase in annual tax projected by 2014 this means even more tax increases than we had been expecting.
Even more public spending cuts There is no way that the Government can fill the entire gap in the public finances, which will be created by a global economic slump, entirely by tax increases. To do so would risk a complete collapse of the Irish economy. This means that ministers will be forced to unveil even more savage public spending cuts in the months ahead.
Even less hope of any recovery in the property market
A worsening international economy will feed through very quickly into the domestic economy, with devastating consequences for what remains of consumer confidence. This will in turn mean that any recovery, or even a stabilisation, in property prices will have to be further postponed. A further worsening of the property crash would make the banking crisis even more severe and put off any hope of economic recovery for many further years.