Tuesday 17 July 2018

We've never had it so bad, ESRI warns

Recession worst since the 1930s, think-tank reveals

Brendan Keenan Economics Editor

IRELAND is suffering the worst recession of any advanced country since the 1930s, the Economic and Social Research Institute (ESRI) warns in a grim analysis of the economy.

Unemployment could rise above 500,000 as national income (GNP) is forecast to fall by 14pc over the three years from 2008 to 2010.

The fall in national income beats the 11pc decline in the Finnish crisis of 1990 to 1993, when the collapse of the Soviet Union suddenly deprived Finland of its main market.

The ESRI believes this year will be the worst of the crisis, with income per person plunging by more than 9pc in real terms.

But there will be further decline next year, with a 1.2pc fall in national income.

The stark outline comes as new figures will today show that the rate of increase in unemployment has slowed, but that 384,000 people are signing on.

The CSO statistics reveal that an additional 11,000 signed on the live register in April, pushing the unemployment rate to 11.4pc this month -- up from 11pc in March.

The Cabinet was told the latest bleak news yesterday, compounding concerns for the economy on foot of the ESRI report.

The ESRI expects a loss of 190,000 jobs this year and 103,000 next year.

Last night, ESRI senior researcher Alan Barrett said their latest prediction would bring national income "back to the level of 2004".

The ESRI forecast of a 9.2pc decline this year is twice the level it expected in its last commentary just three months ago.

"The rate of job losses in the US in the first part of the year has been extraordinary, with 3.3 million jobs shed in the last five months," the report says.

"The forecast that Germany will contract by 5.3pc is in sharp contrast to earlier expectations that it would escape the worst of the global recession," it also says.

Dr Barrett said Ireland was suffering the steepest recession of all because its own problems came in the midst of the biggest global recession since the 1930s.

"It is frightening, the way global output falls are similar to those of the early 1930s," he said.

"Ireland is remarkably exposed to that, which all comes back to housing and the astonishing level of house building which was going on, when it reached 15pc of the economy's output (GDP).

"It was so far out of line and our hope was that it might decline in an orderly fashion. That was probably a bit of a naive hope, looking back," Dr Barrett said.

The combination of the construction bust and the global recession mean that Ireland will also match another unpleasant record -- that of unemployment.

The ESRI expects that unemployment will reach around 15pc by the end of this year, and then level off at 17pc in 2010.

Emigration

That would equal the peak of 1986, and includes estimated emigration of 60,000 over the two years.

"It would be wrong to call that a forecast. It is more of an assumption, because migration is so hard to predict."

With employment officially defined as more than one hour's work a week, the numbers on the live register could reach 500,000 on these forecasts.

The ESRI expects a loss of 190,000 jobs this year and a further 103,000 next year.

The report deliberately looks for positives among the general gloom.

It believes the two Budgets since October have begun to get a grip on the public finance crisis, even though the Government will still have to borrow €22bn this year and €20bn next year.

It says the public sector pensions levy was preferable to cutting useful public sector jobs, but Dr Barrett said more would have to be done.

"Our research suggests public sector jobs pay 20pc more than private ones, even though some price ought to be put on their job security.

"Even a 5pc fall in government wages would hardy narrow the gap, if private sector earnings also fall."

The fact that wages seem to be falling is one of the positive signs, he said.

"Restoring competitiveness is the key to recovery, although global recovery still seems just out of sight. It will be a key test of the flexibility we knew we would need when we joined the euro without sterling."

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