Wednesday 18 September 2019

Dan O'Brien: 'We can all breathe easier with oxygen of economic growth pumping through the EU - for now at least'

With Brexit, Donald Trump’s threats of trade wars and trouble in the euro area never far over the horizon, there is no shortage of things that could clobber the Irish economy. Photo: Reuters/Joshua Roberts
With Brexit, Donald Trump’s threats of trade wars and trouble in the euro area never far over the horizon, there is no shortage of things that could clobber the Irish economy. Photo: Reuters/Joshua Roberts
Dan O'Brien

Dan O'Brien

AIR: when you have it, you don't think about it; when you don't have it, it's all you think about.

It would be an exaggeration to say the average person getting on with life thinks about economic growth in the same way we all do about the air we breathe. But there are parallels.

When the Irish economy crashed in 2008 and the world economy looked to be heading towards another Great Depression, almost everyone started taking much more interest in the dismal science than they had when times were rosy. Issues as arcane as the government bonds and their yields (interest rates) became the subject of pub and taxi talk.

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The Irish economy emerged from a half decade of gloom in 2012, and since then it has been pretty much all good news. The national conversation, when it has focused on matters economic, has tended to focus not on the upsides of growth, but on the downsides, most notably housing shortages and affordability issues.

The past seven years have not quite been years of feast, but most measures of economic performance have been on the up most of the time. There have been occasional soft patches. These pauses for breath have caused those of us who crunch the numbers to fret that the economy was about to run out of puff. So far, however, those concerns have - happily - come to naught.

That was reaffirmed on Monday when the latest shopping figures were published. The CSO retail sales figures for March showed little sign of consumers being spooked by fears of a hard Brexit. Wallets and purses are still being opened. Spending in the shops continues to trend upwards.

This morning, the latest dole queue figures will be published. As this writer was once in the economic forecasting business (a mug's game), I hesitate to make a prediction. But if I had to bet, I'd put a fiver on a further fall in the numbers on unemployment benefit. Why? Because they have fallen in 76 of the past 77 months.

This is good news for everyone, and the scale of the change is worth highlighting. At the low-point of the recession, close to half a million people were on the dole. In February of this year, the numbers fell below 200,000 for the first time in a decade. Fingers crossed for another chunky decline in this morning's figures.

But even if fewer people turn out to be on benefits last month than the month before, there is still a distance to travel before anyone can rest on their laurels.

Almost half of the 28 countries in the EU had a lower unemployment rate than Ireland's as of March, so there is no room for complacency and talk of "full employment" by Government ministers is little more than an invitation to complacency.

Nor is there reason for complacency on the public finances.

The Government's debt rose last year by another €5bn. Despite a sustained period of decent growth, the only reason the Government is not going even deeper into debt is because companies keep pumping profit tax revenues into the exchequer at a rate even the mandarins can't comprehend - €30m per day last year, and still rising fast in 2019, according to the latest exchequer returns.

The precarious position of the public finances means that if the economy were to take a serious hit, there would be the equivalent of a sudden loss of oxygen and people would be back talking about austerity and bond yields in jig time.

With Brexit, Donald Trump's threats of trade wars and trouble in the euro area never far over the horizon, there is no shortage of things that could clobber the Irish economy.

All of these threats are still very real - chances of a no-deal Brexit later in the year remain alarmingly high, for instance. But let's focus today on the good news from the continent rather than the pantomime across the water.

On Tuesday, the EU's statisticians published the latest economic growth and joblessness figures from across the bloc. They were pleasantly surprising.

After almost a year during which the continental economy has been slowing, they brought news that both the EU as a whole (all 28 member economies) and the eurozone (a subset of 19 economies) had a burst of energy in early 2019.

After flirting with recession in the second half of last year, economic growth accelerated in the first months of this year. These figures mean the risk of European recession has receded considerably.

That conclusion was buttressed by what has been happening in the European labour market. Joblessness continues to trend downwards in all EU countries. In March, the EU-wide rate of unemployment fell to close to 6pc, yet another 21st-century low.

Across the eurozone, which excludes two big low-unemployment economies - the UK and Poland - the jobless rate last month was 7.7pc, just a smidgen off the lowest rate recorded since the single currency was created 20 years ago.

On current trends, there is a good chance that by high summer unemployment in the euro bloc will fall below the previous low point, reached just before the crash hit in 2008.

Yet another reason to breathe a sigh of relief this week was news from south of the Alps. In Rome on Tuesday, Italian statisticians published the latest growth figures for that recession-racked country.

Having gone into an outright slump in the second half of last year, many observers were braced for more bad news from a country that is perilously close to following Greece down the path of national insolvency. Ireland's woes in the 2010-12 period were made a lot worse by the Greek crisis.

A similar eruption on the other side of the Aegean could do for the euro, with disastrous consequences for all those who use the currency, from Ireland to Italy.

Given this Vesuvian risk, it was good news to see a surprise rebound in the Italian economy in the early months of this year, with employment up, joblessness down and GDP stronger.

There is no reason to believe Italy will not end up erupting, but this week's news points to settling down of the economic Richter scale. For now at least.

Irish Independent

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