ANALYSIS: The Budget aimed to tackle the appalling domestic economic crisis. But the global crisis, measured by employment levels and trade, is unprecedented

WITH ITS emergency Budget, following on from its earlier de facto cut in public sector pay, the Government has begun to take drastic steps to halt the catastrophic slide in the public finances. But any analysis of Government actions requires their framing against the balance of risks facing Ireland.

On the one hand, tightening budgetary policy will further depress a chronically ailing economy. One the other, not tightening enough risks national bankruptcy. To date, the risk of the former has, if anything, been overstated; the risk of the latter understated.

Discussion of Ireland's risk of bankruptcy must focus first on the wider world, because international conditions will determine whether foreigners will be able and willing to lend to the Irish Government in the short and medium terms.

With the focus in Ireland understandably on the appalling conditions at home, it may be that the awfulness of the international picture is not as clearly in focus as it might be.

That picture is bleak. In all the main economies around the world, domestic trade (as measured by retail sales) is falling rapidly, while trade among those nations (as measured by exports and imports) is in a 1930s-like state of collapse.

For every indicator offering some hope that a bottom is being reached in the global downturn, there are 10 to suggest that freefall continues. A sample of the most up-to-date economic indicators from the world's three largest national economies gives a sense not only of the gravity of the crisis, but its unprecedented nature.

Civilian employment in the US in the first three months of 2009 fell more sharply than at any time since the current series was compiled in 1948. In Germany, orders for manufactured goods fell by more than a third in January, the worst since records began in 1952. In Japan, manufacturing output in February tumbled by 38 per cent on the same month in 2008, a contraction the like of which has never been recorded in the 56-year history of that series.

If these economies remain on the trajectory of the past six months for another six months, the world economy will likely be in depression. Such an outcome would affect Ireland in many ways. Most immediately, it would give fresh impetus to investors' flight from risk.

Those countries now facing crises of one sort or another - on their external payments or their domestic budgets - would find it even more difficult to tap sources of finance. Those closest to the edge would fail. Contagion would spread. The cycle of viciousness would feed on itself.