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Dan white: The recession's over -- shame it won't feel like it for years yet

The recession is over. Just don't get too carried away. With the domestic economy still on life support it could be well into 2011 or even 2012 before it feeds through into higher incomes and more jobs.

The CSO published figures yesterday showing that economic output as measured by GDP grew by 2.7pc in the first quarter of 2010.

Technically this means that the Irish economy is finally out of recession after almost two years.

So why doesn't it feel like it?

On the same day as the figures purporting to show the end of the recession were released, the CSO also published figures showing that the numbers signing on grew by a further 5,800 in June and now stand at almost 445,000.



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Indeed, if it weren't for the estimated 60,000 non-nationals who have left the country over the past year, the numbers on the live register would almost certainly exceed 500,000 by now.

Recovery, what recovery?

What the figures illustrate yet again is that, when it comes to measuring the performance of the Irish economy GDP, which is the internationally accepted yardstick, is worse than useless. This is because it includes multinational profits.

The only meaningful measure of Irish economic performance is GNP, which excludes multinational profits.

The gap between the two measures is wide and getting wider with the figures revealing that Irish GNP is now more than a fifth smaller than GDP.

Not only that, but GNP is still shrinking with the figures revealing a further 0.5pc drop in the first quarter.

In fact, since the economy went over the cliff in early 2008 Irish GNP has shrunk by over a sixth in real terms and by almost a quarter in cash or nominal terms when deflation is taken into account.

That's not a namby-pamby post-war recession but a full-on 1930s-style depression.

And we've got the scars to prove it. Not alone have almost 300,000 workers lost their jobs, the banking system has collapsed and Government tax revenues have dried up, falling by almost 40pc from their 2006 peak in spite of the swingeing tax increases imposed in the last three budgets.

So when can the recovery in the multinational enclave be expected to feed through into the rest of the economy?

That could take time, a lot of time.

The experience of the late 1980s and early-1990s was that while the economy began to emerge from the 1980s recession in 1987 it wasn't until the January 1993 devaluation that it began to be felt in the form of job creation and higher incomes. And things are now much worse than they were in the late 1980s. While the public finances went to the dogs in the 1980s, private sector borrowings were relatively low.

Not this time with private sector borrowing peaking at over two-and-a-half times GNP. With the banks effectively bust, ultimate responsibility for most of this private sector debt has now been transferred to the exchequer.

Digging ourselves out from under this mountain of debt is going to take much longer than it did after the 1980s recession.



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Already we are being softened up for further spending cuts and tax increases in next December's Budget.

While these are desperately needed to retain the confidence of the bond markets, from whom we are still borrowing almost €100m every working day, they will further depress the economy in the short term.

This means that even when the economy as measured by GNP begins to recover, probably in the second or third quarter of this year, it could be well into next year or even 2012 before we feel the impact in the form of reduced unemployment and higher incomes.


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