Wednesday 16 August 2017

All signs indicate we are turning the corner on to Recovery Road

Pay no attention to those who'd prefer we stayed stuck in a blind and recessionary alley, says Marc Coleman

With more grit in his little finger than all the local authorities in Ireland, Brian Lenihan has put a stop to the economy's slide. That is, at least, what a spate of economic data hitting us last week suggests. The interest rate gap on government debt narrowed between Ireland and Germany but widened between Ireland and Greece.

This strengthened the NTMA's back as on Friday it asked international investors to lend it the e20bn we'll need to tide us over this year. So did December's exchequer figures, showing that, income taxes aside, the slide in tax revenue has been halted.

Not everyone agrees with this analysis, but then different people react to news in different ways. Take the weather, for instance: for those with short memories or little experience Ireland is now in the grip of a permanent and apocalyptic collapse in its weather system.

For those who recall 1982, 1963 or 1946, on the other hand, this is one of those big freezes that hits us every decade or so. Friday's Live Register figures are another case in point. Some are quick to stress the 3,300 rise in December's seasonally adjusted total. To those in the know, however, the same number proves how the corner is being turned, albeit slowly and painfully. This is because, as any well-trained economist knows, real unemployment data is measured every three months by the Quarterly National Household Survey. As measured last September, it put the unemployment total a shave shy of 280,000. December's Live Register (collected monthly and therefore more up-to-date) was 426,700. But last September's Live Register total was 425,000, some 145,000 higher than the unemployment total.

And here is the point: although the Live Register overstates unemployment, the two measures do move in synch so that when the register rose by 15,000 in the third quarter of 2009, so -- in parallel but at a lower level -- did unemployment. Having risen by just 1,200 in the following three months, the latest Live Register figure suggests that, when finally published, the true unemployment figure for the last quarter of 2009 will be up by between one and two thousand. Compared to the 15,000 jump in the previous quarter, it's a godsend.

Employment figures also show that there are still 1.9 million jobs in our economy, up a half a million on 1997 levels and over two-hundred-thousand on a decade before. Another point -- to be treated carefully and not misused -- is that the number of Irish nationals in the work force is also 1.9 million.

Despite recession the Irish economy still generates enough jobs for Irish nationals that want them. That we have decided as a nation to allow immigrants to compete for those jobs by having a relatively liberal immigration regime means that we also have 262,800 non-nationals working here. This is not to blame foreigners for us having 280,000 unemployed. Far from it. Rather, the point is that our immigration policy makes our employment performance look far worse than it is.

Encouragement also came last week from the NCB purchasing managers' index for the services sector in December, which was published on Tuesday. The sector is of crucial importance; it is the biggest job creator in the economy. So the news that confidence has grown back to pre-recession levels is very good.

Output in the sector is still declining, but this is happening at a much slower rate than before and with Davy Stockbrokers forecasting a return to economic growth in the next six months, it brings the recovery that bit closer.

It will take time for this recovery to filter down to the average punter. Government finances will also be slow to benefit. That being said, Tuesday's exchequer numbers do at least show that the Government's tax take won't get worse in 2010. December saw Santa Claus put an unexpected €470m into State coffers -- more than was expected on Budget day as almost all tax heads stabilised or improved. Only income tax revenues continued to suffer as the year wore on: it is hardly coincidence that from an average rate of year-on-year decline of 6 per cent in the four months to May, their rate of decline shot up to 14 per cent in the remaining eight months of 2009, during which the doubling of income levies kicked in. Together with Revenue data showing that the top 5 per cent of income earners already pay almost half the State's income tax (while the bottom 50 per cent pay none), CSO data showing a collapse in higher-income-earner salaries from April shows that a drastic reversal of this mistaken policy is badly needed. Drastic policy change is also needed on capital taxation where stabilisation is more a silence of the dead than a sign of resurrection. But the recovery in excise duties and VAT is genuine and shows how warmly the economy responded to the tiny bit of love that was contained in an otherwise grim Budget. Tax cuts are, in short, good for the economy and the exchequer.

The only doubtful news from the economy last week came from the property market and the stock market. There was coverage on the news that house prices are down 30 per cent from peak. But with far thinner levels of buying and selling and far longer selling times for the average house, comparing current prices with 2007 prices is not comparing like with like; stamp duty is combining with negative equity to make the current property market work like a ratchet screw driver, capable of moving in only one direction. Until that tax is removed and constructive steps taken to tackle remaining negative equity (such as the useful extension of mortgage interest relief) comparison of house prices now with peak prices can't be done on a like-for-like basis.

Finally, share prices have rallied in the new year. As the year goes by, the beginning of gradual interest rate rises and the removal of quantative easing by the Fed and ECB will put that rally to the test. But again, a corner has been turned. And here a final question begs asking: compared to the banner headlines given to the destruction of shareholder value when the Iseq was collapsing, why wasn't the partial but significant restoration of that value given equal coverage in the media? Like the bad weather, some people seem to want the recession to go on for as long as possible so they can gratify their insatiable appetite for misery. Let's make a new year's resolution not to listen to them.

Marc's new book, 'Back from the Brink', is on sale now; www.marccoleman.ie

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