Tuesday 24 October 2017

The Economy: Huge challenges remain but economy returning to relative stability

Finance Minister Michael Noonan has had much to be thankful for this year, writes Colm Kelpie

Anger: 5,000 turn out for anti-property tax protest outside Dublin City Hall. Declan Masterson Photography
Anger: 5,000 turn out for anti-property tax protest outside Dublin City Hall. Declan Masterson Photography
Colm Kelpie

Colm Kelpie

It may seem insensitive to talk about the relative stability that has returned to the Irish economy when unemployment still stands at over 12pc and thousands continue to struggle with home repayments.

But we're ending the year on a relatively upbeat note.

The Government will be heading into the Christmas break quietly relieved by what must be its economic and political highlight of the year -- the exit from the EU/IMF bailout programme.

While growth in 2013 is expected to be largely flat, the Department of Finance and various economists predict a stronger recovery in 2014 and 2015. But as we all know, while we may be on our own two feet again, significant problems remain.

The gap between how much the State spends and takes in through taxes and other revenue remains high as does the national debt.

It's set to peak at a massive 122pc of the value of the economy in 2014.

New European rules mean that we have to continue with the austerity to meet certain targets over the coming years. So there's possibly at least one more austerity budget ahead, although some are arguing that if growth pans out as expected, it might not have to be as tough as first thought.

Nevertheless, Michael Noonan will have breathed a sigh of relief that the State was able to move out of the bailout without the tiniest peep from the international money markets.

Indeed, the septuagenarian Finance Minister has much to be thankful for in the past 12 months.

The year began with all eyes on the March deadline for the annual repayment of €3.1bn in Anglo Irish debts. The previous year saw the repayment put off in a complex fudge by the Government, so the political knives were out for the Finance Minister as the end-of-March deadline loomed large.

But a surprise and hasty late night sitting of the Dáil to wind up the Irish Bank Resolution Corporation (IBRC) took place in February.

The hated promissory note debt was transferred into long-term government bonds and the annual repayments were scrapped.

Some were critical that the move simply kicked the can down the road and shifted the burden on to the younger generation. Not so, said Noonan, who claimed inflation would make the debt a lot more manageable when the time came for the State to pay up.

The Government also insisted the move would free up about €1bn and there were some signals that the saving could be used to ease up on the Budget later in the year and give austerity-weary voters a boost.

It was a coup for the Government. Just months later there was more success as European finance ministers descended on Dublin under Ireland's presidency of the European Union, and the coalition announced that the repayment dates on some of the European bailout loans had been extended.

The Government had piggy-backed on to a plan put forward by the Portuguese, but it meant that within the space of a matter of months, the Coalition had managed to win two important concessions on debt.

But we were about to hit another bump. In June, it emerged that the country had slipped back into recession again after the export-led recovery took a battering.

The grim data from the Central Statistics Office showed that gross domestic product (GDP) contracted both at the end of 2012 and start of 2013, with consumer spending also weakening.

The Department of Finance had little choice but to accept the figures were disappointing, but blamed weak global demand.

It had a fair point. Ireland's size and the nature of its economy means it is impacted hugely by what happens beyond our shores, and therefore beyond our control.

Noonan cautioned that a difficult Budget beckoned in October. The €1bn saving from the promissory note deal earlier in the year seemed to no longer have much significance. The CSO had better news in September, when it revealed the economy had returned to growth again, helped by a rebound in exports.

But the weaker than expected first half of the year meant the Government's growth projections were thrown out the window.

It seems almost laughable now, in looking back at Budget 2013, that the Department of Finance had actually thought GDP would grow by 1.5pc this year. It is now expected to come in at just 0.2pc, meaning virtually no growth at all.

Despite the tepid recovery, there has been solid progress in several chief areas, including employment.

The country has essentially been experiencing a period of sustained job creation without any great economic growth, which is very rare.

The Government has also managed to beat its targets and boost the State's reputation internationally. In other areas progress has been painfully slow.

IMF boss Christine Lagarde succinctly set out the challenges we face on the day the Government was celebrating the bailout exit.

"Unemployment is too high, public debt sustainability remains fragile, and heavy private sector debts and banks' slow progress in resolving non-performing loans weigh on domestic demand," she said.

Much remains to be done.

Mortgage arrears remain a significant problem. The troika repeatedly expressed disappointment at the Coalition's seeming inability to deal with reform in key areas, such as the so-called sheltered sectors of the economy, including the legal and heath sectors.

The IMF's parting statement called for further reforms in health, education and social protection.

Hope is also rapidly receding that Ireland will be able to get help from Europe to cover the cost of the crippling bank debt, amid staunch political opposition, most notably from Germany.

The demoralising events of 2010 are now behind us and a tentative economic recovery has emerged.

We're out of the bailout. People have lost their savings, their pensions, their jobs and in some cases, their homes.

But 2013 marked a return to our own two feet. Let's enter 2014 with confidence.

Irish Independent

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