Sunday 16 December 2018

Heal wounds and embrace optimism

Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins
Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins


The famous US baseball player, Yogi Berra, perhaps better remembered for expressions, or turns of phrase that were memorable because they did not make sense, once said that predictions were difficult to make - especially about the future. His unintended wisdom should be especially borne in mind when it comes to the dismal science of economic forecasting. That said, the latest quarterly bulletin from the Central Bank is welcome and a cause for general optimism, not least the bank's upgraded headline growth for the economy of 4.4pc this year and the expectation that an additional 89,000 jobs will be created over the next two years, bringing total employment to a record 2.3 million.

The bank's analysis is anecdotally widely evident for almost all to see. So when it says that evidence from a broad range of domestic spending and activity indicators is that the domestic side of the economy is growing at a solid pace, we can concur. This strength in domestic activity has been underpinned by strong and broad-based growth in employment, which in turn has boosted incomes and supported the growth of consumer spending, while some key domestic components of investment, such as building and construction, have also grown strongly.

While there are, and will remain, arguments about whether the world is too complex for people to find the tools to understand political or economic phenomena, let alone predict the future, it is difficult to ignore the many little things around us that point to a growing economy.

Needless to say, but important to bear in mind, the economy will continue to face significant challenges in the period ahead in the form of Brexit, the housing crisis, skills shortages, international tax changes and infrastructure deficits. There is also a risk that the economy will overheat. Meanwhile, the ECB has signalled that it intends to change its monetary stance, so any consequent rise in interest rates will cause problems for consumers here and possibly also for the State borrowing on the international markets.

The Finance Minister, Paschal Donohoe, has also, and wisely in our view, said that the Government has to ensure that the changing economy makes a difference to people's lives, stating that an improved economy is not the same as a "healed society". In that regard, he is entirely correct.

However, neither would it be constructive for people to dwell for too long on the wounds inflicted by the recession. Those wounds are real and in many cases severe. But so too is the opportunity which now exists to move on in a more positive manner with hard lessons learned. That opportunity should not be squandered.

And it is to be hoped that those lessons have been genuinely learned. In that regard, there is merit in recent calls for a meaningful Rainy Day Fund to be put in place to act as a buffer for a future downturn in our economy, to be deployed as a counter cyclical measure to boost the economy and support public services the State has to provide. To throw caution to the wind now would be imprudent, whether in an election year or at any other time because, and as our friend Yogi Berra might say, it could give rise to deja vu all over again.

Sunday Independent

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