Saturday 7 December 2019

Dan O'Brien: 'Despite the prophesies of doom about risks we face, the domestic and global economies are doing fine'

'Here in Ireland, where both global recession fears and Brexit risks have had to be contended with, there has been less concern about slump over the course 2019. That is because almost all indicators from the economy’s dashboard have continued to show an economy in rude health.' Stock image
'Here in Ireland, where both global recession fears and Brexit risks have had to be contended with, there has been less concern about slump over the course 2019. That is because almost all indicators from the economy’s dashboard have continued to show an economy in rude health.' Stock image
Dan O'Brien

Dan O'Brien

Are we becoming catastrophists? Climate change and Brexit are two things causing concerns that sudden and wrenching change could happen in short order. Political upheavals around the world in recent times have led many people to believe the 1930s are about to be replayed. Street demonstrations in recent weeks in Chile and Bolivia in South America, in Lebanon and Iran in the Middle East, and in Hong Kong in East Asia have merely heightened the sense that something is happening beneath the surface that is about to erupt.

Ireland has not been immune to the wave of pessimism. A headline in this newspaper last Saturday said that "Dublin is teetering on the edge" (in relation to housing) and the increasing use of the term "existential threat" in everyday speech, even when something's existence is not in fact threatened, are examples of a growing sense that big and bad things are just about to happen.

The fashion for foreboding has influenced economic forecasters. Over the summer and into the autumn, fears of a global recession ramped up. From China to Germany, surveys showed corporate executives to be deeply gloomy. There was good reason for their downbeat views - figures on the amount of stuff being manufactured globally and on cross-border commerce made for depressing reading.

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The trade war between the US and China, and the risk of a similar conflict breaking out between the two sides of the Atlantic, made dismal scientists even more dismal than they usually are.

There are certainly big challenges and risks out there. More political eruptions could be on the cards and economies can take very sudden and unpredictable turns.

But despite so much political upheaval, it is remarkable how little impact there has been in economies around the world. Recent news from Britain, Europe, the US and the wider world point to a world economy that, while a bit sluggish, is not sliding into recession as so many analysts and commentators feared only weeks ago.

Despite the huge uncertainty around Brexit, figures published last week showed the UK economy returned to growth in the third quarter of the year. Germany, too, bounced back at the same time. In both countries, unemployment is almost non-existent and joblessness rates are running at record lows.

The pattern is similar across most of the developed world. Europe has not been firing on all cylinders over the past 18 months to be sure, but the continental economy continues to grow and continues to generate ever higher employment levels. The US, despite the political and trade policy uncertainties generated by an erratic and unpredictable president, keeps breaking records on the duration of what has been one of the longest continuous expansions in its history.

Here in Ireland, where both global recession fears and Brexit risks have had to be contended with, there has been less concern about slump over the course of 2019. That is because almost all indicators from the economy's dashboard have continued to show an economy in rude health.

On Tuesday, new figures on the most important measure of what is happening in the Irish economy were published. The three-monthly survey of employment in Ireland by the State's statisticians provides the best helicopter view of what's happening in the country's labour market.

This week's survey showed that the number of people at work rose in the July-September period. Whether measured on a quarterly or annual basis, employment continued to grow broadly in line with the strong rates of increase of more than half a decade. Compared to peers across the developed world, Irish jobs growth continues to be one of the highest anywhere.

The strength in the numbers at work, combined with strong growth in wages and salaries, mean that consumers are providing plenty of momentum for the rest of the economy.

Despite the softer growth in some important foreign markets, the export side of the economy is also contributing to the general momentum. In the third quarter of the year, the value of goods sold abroad was 10pc higher than the same period a year earlier. To be growing exports at double-digit rates during a soft patch in the global economy is quite an achievement. Among other things, it points to an economy which remains competitive despite (exaggerated) fears that domestic overheating could price Irish exports out of foreign markets.

If the Irish economy appears to have been defying gravity for some time, one area of weakness is clear. The most notable sign of all the uncertainty negatively affecting the economy has been business investment. The amount companies are ploughing into their businesses - in terms of plant, machinery, IT and premises - has stagnated over the past year.

This is quite understandable. Companies hold back on adding to their productive capacity if they are uncertain about needing that capacity in the future.

Fears of an imminent no-deal Brexit until recently undoubtedly led companies in Ireland to hold fire on investing in their businesses.

With the chances of a disorderly Brexit now reduced and pushed into next year, and fears about a global recession easing, an unleashing of pent-up investment demand could take place in the months ahead. That would augur well for the Irish economy in 2020 and beyond.

Another nugget of good news came from the British prime minister this week. Boris Johnson on Tuesday told British business leaders that he would not give them a promised tax cut. Instead of reducing tax on companies, he said the money raised would be spent by his government if he wins next month's election.

This may sound like a mere detail in a foreign country's general election campaign, but it is genuinely significant. Of most relevance for Ireland is what it signals about Britain's direction of travel if the Conservatives win the forthcoming election and take the UK out of the EU over the next few months.

Across much of Europe there is a fear that Britain will become a low-tax, low-regulation paradise for business once it is unconstrained by EU laws. The fact that none of the political parties will even offer businesses a small cut in profit tax does not point to a Britain that is about to dismantle the welfare state and create a bonfire of laws that protect workers.

Concerns that Britain will become the Singapore of the North Atlantic have always been overblown. Ireland and the rest of the EU do not have a great deal to fear from a country that is moving leftwards, not rightwards, while at the same time cutting itself off from its own economic hinterland.

Irish Independent

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