Monday 20 January 2020

Economic headwinds from Europe can rock Irish recovery

Finance Minister Michael Noonan
Finance Minister Michael Noonan

Colm Kelpie

IT'S like being in two different worlds writing about the Irish and eurozone economies. Readers would be forgiven for thinking there existed a disconnect between the two. It's suddenly doom and gloom surrounding Europe, while Ireland appears to be surging forward.

Growth in the eurozone stagnated between April and June. The economy in Germany - the bloc's economic engine - actually contracted, while France, the second largest economy, was flat. Eurozone industrial production fell unexpectedly for the second month running and investor confidence in Germany also dropped.

By contrast, forecasts in Ireland have growth this year rising as fast as 3.5pc. Employment is predicted to drop below 9pc next year and experts are suggesting there could be little or no austerity in October's Budget given the stronger than expected tax take.

So is Ireland removed from what is happening elsewhere in the eurozone?

Goodbody economist Dermot O'Leary believes it's a double-edged sword.

For exports, it's potentially a negative for Ireland as the region is a highly important trading partner, although our exports are in niche sectors which are growing, he said.

On the upside, difficulties in Europe will force the ECB to keep interest rates at a record low, which will benefit consumers struggling with debt.

"The ECB effectively dropping rates to zero provides a window of opportunity for Irish consumers in general to breath because the debt burden has come down so significantly, and continued low growth mean the ECB will have to keep that rate on hold and Irish consumers will continue to get room to breathe," O'Leary said.

O'Leary believes even if the less than positive performance in Europe was to continue, the momentum experienced so far this year in the Irish economy provides a solid base.

But over the medium term, it will likely impact on Ireland's growth projections. The Department of Finance has estimated that if world output was to fall by 1pc, Ireland's GDP would drop by a similar amount by 2018.

We're not living in isolation.

Irish Independent

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