Is Ireland out of the Economic Woods? Tony Foley Senior Lecturer in Economics, Head of Economics, Finance and Entrepreneurship, Dublin City University Business School www.thehardwareconference.ie #HAIconf
The Irish economy has recovered from the dismal position and performance of 2008 to 2013 This is so on a range of macroeconomic indicators Growth of GDP and GNP, level of GDP/GNP, unemployment rate, numbers in employment, annual public financial deficit, improvements in public debt to GDP but debt remains high www.thehardwareconference.ie #HAIconf
But…….what is true for the economy as a whole is not true for many groups and individuals within the economy The consequences of austerity measures introduced since 2008 and the many negative economic consequences are still with us and we face significant social/economic problems Illustrative list…..currently
Those small shareholders who had shares in Anglo Irish and AIB and ILP…….wiped out Public servants on much reduced salaries especially new entrants….same for many private sector employees Tougher conditions of employment Impact of higher taxes, USC, VAT, property tax, water charges (despite tax reductions in last 2 budgets) Social welfare cuts, young unemployed, single mothers www.thehardwareconference.ie #HAIconf
Negative equity and mortgage difficulties Homeless and house purchase/housing situation Poor state of public services Small businesses which went bust Emigration Real after tax income Debt for rescuing the banks (around € 30 to € 35 billion) Bank interest rates Domestic costs e.g. medicines www.thehardwareconference.ie #HAIconf
The Irish economy is left with the major contradiction which will continue that while the economy and public finances have recovered many of the consequences of the economic collapse for many people remain. Recovery does not mean reversal of the negatives End of new austerity measures does not mean reversal of the already introduced measures. www.thehardwareconference.ie #HAIconf
Communication the message on the economy We should be very careful in communicating the message on the economy Pride and pleasure on the recovery (life would be much harder if the growth of the past three years had not happened) Realistic confidence on the future growth prospects (subject to the usual caveats about growth expectations eg Brexit, political instability, cost competitiveness) www.thehardwareconference.ie #HAIconf
A strong awareness that many of the direct and indirect economic and social consequences of the collapse remain with us and will do so for years to come Solutions to problems will be difficult There remains a strong need for sensible economic commentary and discussion, and debate on the policy options and requirements www.thehardwareconference.ie #HAIconf
The story in figures: out of the woods??? Unemployment rate 2011(Feb) 14.3%, 2016 (Feb) 8.8% Employment 2010 (Q4) 1.8573 million, 2015 (Q4) 1.9830 million….+126k (2.1696 million in 2007 Q4) Weekly gross earnings per employee, all sectors 2008 Q4 €721.27……2015 Q4 € 712.75 www.thehardwareconference.ie #HAIconf
Lowest level 2013 Q4 € 689.41 Gross employee weekly earnings (before tax, vat, property tax, water charges) lower in 2015 than in 2008 ….7 years CPI dropped by 0.9% 2008 to 2015 and increased by 3.7% between 2009 and 2015 www.thehardwareconference.ie #HAIconf
GDP/GNP % volume www.thehardwareconference.ie #HAIconf
Definite and significant improvement in performance in recent years 2013 for GNP 2014 for GDP 2014 for consumption 2014 for exports Growth rates for cons versus rest But not all economic sectors www.thehardwareconference.ie #HAIconf
Construction/Hardware 2007 Q4 GDP construction (constant prices) € 2.467 billion……….2011 Q4 €1.050 billion…..2015 Q4 1.357 billion Retail hardware sales volume index 2007 116.5…… 2015 85.3 drop of 26.8% Lowest was 2012 75.5 Value performance worse due to price reductions www.thehardwareconference.ie #HAIconf
Construction employment 2007 Q4 266.2k, 2015 Q4 126.6k Lowest 2012 Q4 103.2k and increased since Overall substantial improvement, but some sectors and people definitely not fully nor nearly recovered from collapse www.thehardwareconference.ie #HAIconf
Future Economic Performance Short term economic forecasts optimistic, output, employment and earnings growth ESRI and Central Bank March and April ESRI GDP % growth 2016 4.8 2017 4.1 CB 5.1 4.2 Consumption ESRI 3.8% and 3.5%, CB 2.8% and 2.0% (difference) Investment ESRI 22.5%, 22.1%. CB 13.6%, 7.7% (difference) www.thehardwareconference.ie #HAIconf
Risk factors Forecast not guaranteed Many risk factors, internal and external External…. Brexit…(impact of Sterling decline) (uncertainty)…..emerging markets slowdown….. geopolitical tensions…. growth in EU/Euro area…. global financial markets problems The external environment is uncertain and unstable www.thehardwareconference.ie #HAIconf
Internal ….dependence on FDI in light of possible new tax rules….cost competitiveness as workers seek the foregone pay increases of past years….political instability both from “numbers” and also increased annoyance of electorate as realities of requirements/possibilities for “fairness” become apparent….increased taxes to support better public services www.thehardwareconference.ie #HAIconf
Summary The economy has turned a corner for the better in recent years with improved macro figures, growth, employment, public finances But consequences and legacy of the economic collapse still remain for many people and certain sectors But no means are the negatives of 2008 and onwards corrected/removed and it will be many years before this happens www.thehardwareconference.ie #HAIconf
Growth projections are optimistic with continued high growth (but lower growth than recently) but there are significant risk factors. A negative scenario would see lower growth which would put increased pressure on the public finances which would require corrective action to meet EU fiscal rules In the terminology of the recent election….. www.thehardwareconference.ie #HAIconf
A significantly fairer economy and society (however that is defined) and substantially improved public services will require more resources than is likely to be available from the fiscal space over the next few years. While the economy is out of the woods in terms of the 2008 collapse, it still faces the ongoing economy management issues of all economies with two additional significant Irish elements…how do we have a good public service society with a tax system which encourages enterprise and initiative and how do we cope with the pent-up demand for higher incomes Future economic management will be difficult as raised expectations will be difficult or impossible to meet www.thehardwareconference.ie #HAIconf
Illustration of tax implications of fairness and service improvement 2014 Irelands tax revenue was 29.9% of GDP or 35% of GNP As % of GDP Belg 44.7, Sweden 42.7, Ger 36.2, Fra 45.2, Den 50.9 Taking the 35% as the true measure Ireland would have to increase taxes by 29% to reach the French level, 22% to reach Sweden’s level, 45% to reach Danish level. www.thehardwareconference.ie #HAIconf
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