Monday 22 January 2018

The future isn't as dark as it's often painted

As the annus horribilis that was 2010 finally draws to a close, the shoots for growth in 2011 are emerging, as Roisin Burke discovers

LAST week's CSO figures showed a cheering 0.5 per cent GDP lift in the third quarter of 2010 and a jump in export growth.

A GDP hike and a booming export sector don't tell the whole story, of course -- domestic companies and consumers are still gripping tight to their purse strings. Until they feel more confident to spend, little can change.

People are still hurting, but there is still some hope for the economy in 2011.

Alan Gray

Managing partner at Indecon International

"All the factors that gave rise to the genuine Celtic Tiger economy, the real boom as opposed to the spurious housing bubble madness, are still in place," says Mr Gray.

"Growth up to 2003/2004 was driven by these genuine factors, which are still here. And some have actually got much better: lower housing and industrial property costs, labour and energy costs, and the availability of skills."

We still have a lot going for us, he maintains. "Ireland is a unique location in Europe for foreign investment.

"Our skilled population level is really quite exceptional, with 44 per cent of the population aged between 23 and 33 having third-level education. That is multiples of education levels in other countries, including industrial powerhouses like Germany.

"Ireland has the lowest cost of capital [that is, how much it costs to invest] in the EU due to the 12.5 per cent corporate tax rate.

"We underestimate the value of an English speaking population -- but this is critically important to the US.

"Then we have access to the most high value added consumer market of Europe, with its 501 million people on our doorstep. Outside countries facing tariffs and other barriers would die to have that. And we're also part of that unbelievably wealthy export market.

"While it probably won't be quite as positive as government figures predict, there will be growth and potential for significant growth in 2011 -- and beyond."

Austin Hughes

Chief economist, KBC Bank

There's a clash between the statistics like last week's GDP growth in Q3 and the climate on the ground, in Mr Hughes's view.

"The global economy is improving, competitiveness here is improving, there's strong investment into Ireland. The domestic companies that have survived are leaner and stronger.

"Irish labour costs have improved by 15 per cent against our European competitors. We have had the impact of devaluation, and, in effect, we have silently left the euro in terms of cost conditions.

"Redundancies and the jobless rate have definitely abated in the last while. The fear of joblessness and wage cuts has gone past the worst point. The very dramatic changes in circumstances are probably over.

"Living standards have been very sharply hit, but uncertainty is subsiding. People are getting used to 'the new normal' and circumstances are marginally less awful than they have been.

"Income cuts have eased a little bit. There are still the tax changes in the Budget to be faced but people will manage to muddle through next year. It's the same for companies -- business volumes have been much diminished, profit margins are much lower.

"There has been a dramatic change in spending patterns by consumers and companies so that they're now in a more sustainable position to cope. Perhaps an election will also help to put the past behind us. However, those on the lowest incomes, or with really tight margins, they're just making it through on a stretch.

"GDP represents all the elements drawn together, it doesn't capture what's happening in the economy on the ground.

"We will see the expected growth rate, but for the average consumer or business that isn't dealing in exports, it won't feel better. Experiences will differ.

"The hope is that the Budget will work, that exports help, tax revenues will hold up, and that Budget 2012 won't have to be as awful."

Alan Barrett

Research professor, ESRI

Despite the nay-saying by others, the Economic and Social Research Institute (ESRI) is sticking by its pre-Budget forecasts of GDP growth of 2.25 per cent in 2011 -- an even more optimistic outlook than the Government's shiny, happy 1.75 per cent forecast.

"As of now, nothing has happened that would knock that off course," says Mr Barrett.

But a big economic rebound in 2011 isn't likely.

"This is sluggish growth relative to what we've come from and a rate like that wouldn't see any increase in employment. We could see employment notching down a little bit, a decline of 10,000 people."

Up to 60,000 people will have emigrated between April 2010 and April 2011, and Mr Barrett sees "no indication that it won't continue like that for the rest of 2011".

"I don't see the factors that would spark a lift-off in 2011 -- certainly not."

Dan McLaughlin

Group chief economist, Bank of Ireland

"The data shows the economy recovering and we have to take comfort from that," says McLaughlin.

"The recession ended six to nine months ago if you look at either the GDP or GNP metrics, but most peoples' perception of the economy is driven by consumer spending, which is still falling.

"Given our €17.7bn deficit and two per cent rise in tax rate and the tough Budget, it's not surprising people don't see the recession as over.

"People continue to cut back on discretionary spending on food, restaurants, bars, and more. We're unlikely to see a rise in household income, therefore consumer spending will continue to be depressed.

"Public perception is going to be a big factor in 2011, whether they continue to boost their savings, or feel the worst is over. Spending is unlikely to rise, but some ease on saving might happen.

"Spending is falling more than household income is. The saving-to-disposable-income ratio has gone from two per cent to 11 per cent, it's extraordinary. It may stabilise if consumer sentiment improves.

"One could say there's an export boom at present. The €10bn trade surplus for the last quarter is an all-time record. Barring a significant global slowdown, which doesn't look like it's on the cards, it would seem export figures will continue to be strong.

"From January 1, 2011, the Vat rate in Northern Ireland goes to 20 per cent, the least different to the Republic in a long time, which should help keep spending here.

"If there's an upside surprise in 2011, it will be that the domestic economy recovers. The downside surprise would be consumers entrenching further.

"Last year, anything that could go wrong did go wrong. In the first three or four months of 2011, if we got decent tax receipts, the Budget stayed on track, unemployment levels, it might flood into the public consciousness that the recession is over."

John Whelan

CEO, Irish Exporters Association

"Despite the call of the IMF to our shores, the forecast of seven per cent growth in export of goods and growth for 2011 is very positive," says Mr Whelan.

The seven per cent total export growth will create €11.5bn more in export sales in 2011. However, if we are to meet the tax revenue targets, based on employment targets in the Four Year Plan then we will need to reach a 10 per cent export growth per annum," he says. Getting into Asia and other growth markets and promoting the dairy and wider food sector will help do this, especially dairy industry, which is now free of CAP restraints.

"We may have scored a few own goals on the property and banking sectors, but the picture continues to be very positive for the export industry and with it the return to real sustainable job growth and economic stability."

Sunday Independent

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