The Irish economy will record positive growth in 2011 for the first time in four years and we are not heading into a double dip recession, the head of the employer’s body Ibec said today.
Austerity must be adhered to but we can’t handle any more, Danny McCoy warned.
“The €3bn adjustment last year ended up being €6bn and there is a danger of people getting more aggressive and talking themselves into more austere measures,” he said. “There should be no austerity measures beyond the €3.6bn planned for this year.”
Speaking on Morning Ireland he said that our confidence keeps getting knocked, but growth is clearly showing and Ireland is trading its way to recovery.
“Growth this year is 1-1.5% in volume terms, but in reality it’s 3% in money terms this year and potentially 4% next year,” he said. “Last year was a record high for Irish exports and 2011 will exceed that.”
Conceding that domestic demand is still very weak, he said that austerity is working but we cannot handle any more and now is not the time to change course.
“The response to current economic challenges cannot be a repeat of the 2008 response. While the events of three years ago were caused by a financial crisis and a freezing of credit for business and households, recent turmoil is primarily driven by concerns about future growth,” Mr McCoy writes in today’s Irish Times.
“Major progress has been made restoring competitiveness and ensuring that businesses are on a firm and sustainable footing. This very tough adjustment is paying off and exports by Irish firms have recovered strongly.
“Of course as one of the most open economies in the world, Ireland is not immune from global trends. From early on this summer it was clear to Ibec members that international trade was softening. More recent market events are likely to further hit demand in many of our key trading partners and knock already shaky domestic sentiment.
“In light of this some want to see Ireland retreat deeper into its austerity bunker. The renewed rush to austerity across Europe is not, however, a reason for Ireland to accelerate its plans to close the budget deficit.”
The vast majority of Europe’s citizens have too much to lose from a disintegration of the eurozone and while politicians will muddle along, the actions required to preserve the euro will be more attractive than the alternative, he said. “Growth is the ultimately the only answer to Europe’s problems.”
Ireland has the most favourable demographics in EU and our productivity performance is strong due to excellent labour market skills and world class flexibility in the marketplace, he argued.
“We should not discount the significant progress made towards reviving our economic fortunes. The economy has stabilised and begun to grow again. Fiscal targets are being met and the next challenge is sustainable growth and getting people back to work.”
He said we shouldn’t get too transfixed by market gyrations and market values of stocks and bonds will continue to ebb and flow.
Markets and rating agencies, not to mention academics, often make egregious errors in judging country risk. All too often this is by failing to notice a change in macroeconomic fundamentals that really does matter. As the crisis moves through its nadir, one major error is almost certainly the market assessment of Ireland's public debt.