Internal action needed to save Irish housing market from global economic slowdown. Whether there will be a recession or how much average living standards will fall is uncertain. What is certain is that jobs will go and, for many, living standards will fall.

The economies, in the north and south of Ireland, are not immune to the international consequences of higher oil prices and the credit squeeze in financial markets. Much of the causation is outside any Irish control.

A conspicuous exception is the crisis in the housing market where, for different reasons, house prices have fallen sharply and some firms in the construction industry have seen order books almost disappear.

In this (near) recession, north and south are sharing the experience. The impact of the economic slow-down, however, differs from north to south. In part, this illustrates the difference between ‘national' and ‘regional' institutional factors. The differences stem from the methods of economic management.

The slowdown has been more conspicuous and widely based in the south. Unemployment has increased more sharply, inflation rates are higher, and the appreciating purchasing power of the euro has made sterling transactions more attractive. Cross-border shopping in the north is a major source of expansion. In the north, unemployment is still low and the depreciation (relative to the euro) of sterling is an incentive to exporters of both goods and services, including tourism.

The other divergence lies in the contrasting measures taken to counter the economic slow-down. The Irish government is introducing unpopular restrictions on government spending, both current and capital. Items in the National Development Plan are being deferred. In Irish economic management, a key factor is the impact on an acceptable level of government borrowing. The 3% of GNP limit, set

as an aspect of EU macro-economic policy, is under strain. This has caused the Republic’s Finance Minister Brian Lenihan to restrain capital spending, cut parts of government current spending and seek efficiency savings.

The Northern Ireland Executive, including Finance Minister Nigel Dodds, is still planning to increase public sector spending as was allowed in the budget for 2008-9. Current spending is constrained by the existing efficiency savings target set months ago, so that the real increases are modest. Capital spending approval totals have increased but some are subject to funds raised from capital realisations.

The capital realisations plans are subject to increased uncertainty. Asset sales will be less attractive in an era of lower property and land prices. Also, the strategic investment programmes will convert into actual capital spending more slowly than ministers had expected.

Northern Ireland budgeting, as a devolved region of the UK, is not involved (yet) in debate about the impact of the slow-down on UK government finances. In practice, the UK seems likely, as a non-member of the euro-zone, both to exceed the 3% borrowing limit and to gain the short-term advantages of currency devaluation. In this setting, the north's economy is somewhat deceptively sheltered from some of the immediate impact of the economic downturn.

Nevertheless, across Ireland, energy and fuel prices are rising in response to international pricing. Market interest rates are higher because of credit limits. Consumer spending will fall as general prices rise more than cash incomes.

The key tests for governments, north and south, lie in the places where local economic management can make a difference. Special steps offering support to the housing market are possible. Careful management of public strategic investment plans should avoid cuts in announced plans. This may mean extra finance through PPP schemes.

Economic management now calls for greater skill because of the economic downturn. Now is not the time simply to blame external events. Appropriate internal responses are needed.