Tuesday 25 October 2016

It's beginning to look a lot like the late 1990s as tide turns

Danny McCoy

Published 10/09/2015 | 02:30

The late 1990s was a seminal era in Ireland's recent history. It will be mostly remembered for the optimism of the Good Friday Agreement, and the belief that the Celtic Tiger was not a jobless growth phenomenon but that Ireland could not only employ its native population but also give opportunities to many other nationalities.

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In an economic context, the main event was saying goodbye to the punt, with the euro traded for the first time in January 1999.

Summer 2015 has felt a bit like those heady days of the late 1990s.

I sense we now really believe that economic recovery is under way and that a swell of hope and optimism is returning to the country. It's not just that the economic recovery has become more tangible; it feels like we are about to see a dramatic gear shift in our economic fortunes.

The main economic indicators are all now pointing to a balanced and robust economy. Consumers are spending again - retail sales (excluding cars) were up 6pc in the first seven months of the year. Industry is also doing well as output grew almost 20pc in the same period.

While it is disappointing that the housebuilding recovery has been so timid, overall investment in the economy is also contributing strongly to growth. The most spectacular aspect of the Q1 economic output numbers was that the value of GDP growth was up 12pc in the year.

We haven't seen a set of national accounts like it for almost a decade. The buoyancy was further reinforced by end-August tax receipts, which showed that tax revenue was up 10pc in the year, €1.4bn more than expected.

While many have been surprised by these much better than expected economic indicators, our experience of 1990s shows just how quickly debt and unemployment problems can be turned around. One of the most striking features of the economy in the late 1990s was the speed at which unemployment plummeted.

It dropped three percentage points in 1998 to move from double digits to 7.4pc. In the second quarter of this year the unemployment rate was down two percentage points, but jobs growth could easily improve further, particularly if housebuilding activity moved closer to the level that the economy actually needs.

A rapid turnaround in migration patterns will inevitably follow the jobs market improvement. The first signs of this are already evident in the most recent numbers, although these are probably already a little dated. In the year ending April 2015 our population jumped by 26,000.

Interestingly the population increase in the booming economy of 1998 was just 22,000. Back then migration trends were even more closely linked to job prospects than they are now. Around 30,000 people left Ireland in 1998. Last year it was nearly three times that and, surprisingly, largely unchanged from the previous year's level.

While inevitably some of the emigration is still a consequence of our high unemployment rate, increasingly it is more reflective of lifestyle decisions rather than economics. It is simply much more feasible for our young people to spend some time travelling the globe than it was 20 years ago.

The trends in inward migration in recent years are equally fascinating. Around 70,000 people moved to Ireland in the past year, an increase of 10,000 on the previous one. Again this is in sharp contrast to immigration of 46,000 in 1998.

In fact right through the most difficult years of our recent recession, the level of immigration only once dropped below the inflow recorded in the late 1990s. The other very notable statistic from the recent population estimates was that our level of natural population increase (births less deaths) was almost double that in 1998.

I think we are likely to see an end to net emigration this year and Christmas 2015 could well herald a surge in numbers returning and moving to Ireland for the first time.

Coupled with the very high level of natural population growth, we are therefore likely to see a rapid acceleration in population growth over the coming years.

My main concern now is how we are going to cope with the demographic and general economic activity surge which we are headed for. The housing shortage has been evident for some time and looks like it will be painfully slow to resolve.

Dublin, for example, needs about 5,600 new houses per year, rising to 8,900 in 2018, but last year just 2,800 units were built.

The capacity pressures are also likely to intensify in transport, education, health and other areas of infrastructure. We have a limited window to plan for these pressures and we urgently need to see a mindset change from our policy makers. It's time to get out of the bunker, move beyond crisis management and plan ambitiously for the country's future.

As a first step we need to develop a shared ambition for Ireland's future. We need to learn from our history and our mistakes, but we mustn't be paralysed by them. We must show a collective ambition for future prosperity, quality of life and sheer scale of our economy and population.

Then we must match this ambition with investment plans. For example, we need more and better housing; we must complete the motorway network; we must effectively fund our education system and provide broadband connectivity for all areas of the country. We need to be spending an extra €2.5bn a year and public infrastructure investment should double to 4pc of GDP by 2020.

In the early 1990s many people thought the country would be constrained for decades by its debt burden. A similar sentiment has pervaded in recent years, but by the end of this year debt to GDP will probably already have dropped by over 20pc from its high water mark.

If we make the right decisions we can very quickly outgrow any remaining debt constraints. A major programme of events is planned next year to mark the 1916 centenary, but 2016 could also be this generation's 1998; the year we are no longer stunned by economic crisis, but instead look forward with a renewed sense of vision and ambition for the country.

As Twain remarked: history may not repeat itself but it sure does rhyme. Let's plan for a more sustainable economy this time with optimism. A stable government from the next election will be an important platform.

Danny McCoy is chief executive of Ibec, the employers' group

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