Friday 28 October 2016

It's not 'all about the economy, stupid'

With the Government getting no electoral dividend from recovery, political instability is all but assured in 2016, says Dan O'Brien

Published 16/08/2015 | 02:30

DISCONNECT: The upswing in the economy hasn’t been matched by a surge in support for the Government parties. The Government’s errors in handling issues such as water charges have added to high levels of disillusionment with politics, manifested, above, in mass protests about the charges
DISCONNECT: The upswing in the economy hasn’t been matched by a surge in support for the Government parties. The Government’s errors in handling issues such as water charges have added to high levels of disillusionment with politics, manifested, above, in mass protests about the charges

What is happening in the economy? How closely linked are economic performance and support for the Government parties? And what do the answers to these questions mean for the outcome of the next general election, which is now at most seven months away?

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Let's start today's post-vacation stock-take by considering the remarkable degree to which people have become more upbeat.

The monthly consumer confidence index produced by KBC bank and the ESRI has been around for almost two decades. As recently as two years ago, it was showing that consumers were as determinedly glum as they had been at any time since the mid-1990s. Sentiment was on the floor.

But over the past two years it has soared, reflecting the strong economic recovery (more detail of which anon). As of the middle of this year, respondents were telling surveyors that they are as confident about the economy as they have been at any time this century, matching previous peaks in the early and mid noughties - at the height of the Celtic Tiger and the property frenzy respectively.

And just in case there is any scepticism about these findings, they are confirmed by an entirely separate monthly poll taken by Amarach, a consulting company. That outfit's Economic Recovery Index, which has been taken monthly since 2009, asks folk about their assessment of the direction of the economy. In the first survey six years ago not a single respondent believed things had fully recovered, while 58pc believed - correctly - that things were bad and getting worse.

The most recent poll, taken in July, showed that the just 14pc believed things were still going to hell in a handbasket.

Overall, the Amarach polling data mirrors closely and consistently the KBC/ESRI consumer confidence survey, with both showing a surge in optimism and confidence about the economy over the past two years.

The collective perception very much reflects the hard data on the state of the economy.

Three years ago, the bottom was hit after a half decade of depression. Although signs of tangible recovery did not become evident until early 2013, the improvement since then has been as uninterrupted as it has been welcome. Even ignoring the increasingly unreliable GDP figures, almost every indicator across the economic dashboard is signalling growth, at rates ranging from modest to super-charged.

But despite the turnaround in the economy, support for the government parties is far below the level at which it would need to be for the coalition to win a second term. Worse still for the coalition parties, the performance of the economy and their poll performances have decoupled completely, as the accompanying charts illustrates so powerfully. There is not a single sign that, as voters feel better about their economic fortunes and prospects, they are more inclined to credit the government.

The coalition partners had hoped that they would see a gradual increase in support as the election approached, thanks to the recovery. From that base they believed that their support could surge as the campaign began on the basis that more people would see that a renewal of the Fine Gael-Labour coalition was the least risky option for the next five years.

Although it is still very likely that the latter factor will work in their favour come election campaign time, they will almost certainly be starting from a much lower level of support from where they hoped at start the three week campaign. That will make getting over the line to a Dail majority much more difficult and, at this stage, with so little time left before the election, it is almost impossible to envisage the two parties retaining a majority, or indeed coming anywhere near to that level of support.

The failure of political trends to recouple with those of the economy is likely to be explained by the high level of disillusionment with politics in general and the Government's own errors, particularly in relation to water charges.

Another explanation frequently mentioned is, that while most people agree the economy is doing well, many don't feel they are benefiting personally. There is certainly a good deal of truth in this - the very modest increase in wages since the recovery began is the best hard economic indicator to support this view. When the economy-wide average wage is considered, the increase in the four years to the first quarter of 2015 was a paltry 1.4pc. Nobody is going to be feeling flush on the kind of increase over such a long period, and all the more so when money has to be found for new taxes and charges.

But there is some tentative evidence that recovery is beginning to be felt in wallets and purses. The new year brought a quite the astonishing increase in new car purchases. In the first seven months of the year the number of autos driven off forecourts rose by a whopping one third over the same period in 2014. Add to that the sharp uptick in foreign travel in evidence since the final months of last year and it could be that more people are now feeling confident to splash out.

These trends give the Government parties some reason to hope that a stronger feel-good factor will have kicked in by next spring. So if there is still the prospect of a positive surprise, coalition supporters can also be relieved that they are unlikely to have to deal with a negative surprise on the economy before polling day. Such is the momentum in so many sectors, it would take a massive shock to halt the recovery over the next half year.

Domestically, it is very hard to see anything big going so badly wrong that the recovery would be killed off, unless the fear of political uncertainty itself does the job.

Internationally, the Greek situation has been sticking-plastered yet again. As such, the next Grexit crisis (and there will be one, sooner or later) probably won't erupt until after this country's election. Of the foreseeable crises, only a full-blown and dramatic recession in teetering China seems capable of doing real damage in the short term.

The Government parties are therefore likely to have a strong case to make on the economy during the election campaign.

They are also likely to play up Sinn Fein's links to Syriza in Greece to underscore just how badly things could go if the former tried to live up to its "let's-lay-down-the-law-to-Europe" rhetoric.

But even in the best case scenario for Fine Gael and Labour, it seems as if too many voters are determined not to credit them with bringing better economic times. As such, the odds are still heavily stacked in favour of the most fragmented Dail in the state's history, and all that means for coalition formation and cohesion. Turbulent times are in store for 2016.

Twitter: @danobrien20

Sunday Independent

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