When will Ireland get out of recession?
David Bloch, MD of the Brightwater Group comments:
October 1st the ESRI predicted Ireland would be out of recession by Q1 2011, Davy’s stockbrokers predicted Q1 2010 and NCB predicted Q4 2009… I think I’ll go with NCB!!
Ireland’s economy can be simply divided into the external market (exports) and the internal market (spending). The external is the country’s wealth-creator and the internal is where it’s spent - thus keeping the country (and exchequer) buoyant.
Ireland has continued to outperform the entire EU export wise. From 2000 to July 2009 Ireland’s exports grew by 40.9% versus the EU average of minus 10.1%, but what’s even more impressive is from July 2008 to July 2009 (recession) Ireland’s exports dropped just 1% versus the EU average drop of 25%. Our Manufacturing and Service sectors have massively outperformed our competition. This is seriously great news and should be highlighted!
Ireland’s problems are internal, where the stats are not good. The nub of the problem is property… which has led to banking problems and beyond.
In Ireland, home ownership is about 85% where in most European countries it is nowhere near this e.g. France, Italy and Germany where home ownership is about 40%. Then over the last decade Ireland’s population aged 20-40 has gone up by about 60% (due to higher birth rate, returning Irish and immigration), where the EU average is minus 20%. The above points led to massive house building and supply & demand price inflation. Then the recession came… fear stopped people buying houses, the credit crunch made buying difficult and the global recession slowed everything. The effect on Ireland was devastating. However, the effects are temporary and in the long run having a younger, growing, home-owning population will be of great benefit to the country.
Confidence has been eroded by the above points, and by the media’s constant negativity. For example, The Irish Times chooses to Headline the ESRI’s gloomy predictions above Davy’s or NCB’s – and that has led people to save, save, save! BOI & AIB are awash with money, but little investment. In 2007 Ireland, the US and UK populations saved about 2% of their annual income. Recessionary fears have led the US and UK populations to save about 5.5% of their income, but Ireland’s people are now saving about 12% of their income. This is too high. There’s no money-go-round, no buying, investment or development. The country has frozen and must be unfrozen. The fear and negativity must stop now… tell people the Good News… tell them THE TRUTH!
Another example (and close to my heart) is employment and I have two points. The first point is, let’s be clear, the rate of unemployment has dropped every month from a loss of 30,000 in January, to a gain of 16,000 in September. The media may explain the gain as seasonal adjustment, but so was the drop in July and that wasn’t mentioned. Either way, the employment situation is getting better and better. The second point is known, but not well publicised: it is well reported that in Ireland we have about 12.5% unemployment (about 420,000 people). In Ireland we count every person on the live register as ‘unemployed’, so this includes everyone working part time, on maternity leave pay, sick leave pay, disability, now on ‘3 day weeks’, and this about 180,000 people, leaving 240,000 as fully unemployed. In most other countries, including the US and the UK they do not count the 180,000. In their measurements Ireland has 240,000 unemployed, about 7 or 8 %. Things are getting better! Indeed, at Brightwater we’ve just had our best month of the year thank goodness - I see some light at the end of the tunnel!
GDP is another stat often bandied about and we all know how all the predictions were of Ireland being the worst affected in the EU. We also know that Finland, Spain and many others have fared much worse than Ireland. However, the truth is still that our GDP has slumped, but why? One reason is property where there is little building going on – and because of our young, home-owning population the GDP slump is exacerbated. Germany and others didn’t have the same building growth so never got the reverse swing either! But of course, when the economy returns, our GDP growth will also grow disproportionately to everyone else’s. Secondly, confidence in Ireland is eroded by 24/7 bad news reporting (don’t you sometimes feel “get me outta here”)?! Retail sales are an important indicator of confidence and while they have fallen off remarkably since 2007, since January 2009 the indices have risen by the month from 84.3 to 93.3 by June. Finally, and most importantly Ireland is part of the global economy which is why all the major parties called for a ratification of the Lisbon Treaty. In Ireland, a remarkable 90% of our GDP comes from exports versus an average 40% for the EU as a whole. As such, when there is a global crisis, Ireland’s production is hit hard, but when the global economy rebounds, we rebound further and faster.
In conclusion, Ireland has a dynamic and internationally woven economy that is suffering exponentially as part of a global recession. We also have a young, home-owning population that are not currently buying and finally, we are gripped by a negative media that delights in eye-catching, misleading headlines about the demise of the country, giving us confidence problems.
When will we get out of recession? To paraphrase Henry Ford: If we believe we’ll get out of recession next quarter, then we’re probably right; and if we believe we’ll get out of recession in 18 months, then we’re probably right again! For my part, I call on the media to help boost confidence with more balanced and positive reporting of the economy. For example, if everyone was properly informed about how well our exports have performed in comparison to other EU countries, then they’d realise that, notwithstanding temporary housing-related problems, the long-term outlook for the economy was good. After all, the housing-related problems will eventually go. Sooner or later the global credit crunch will end, mortgages will become more widely available and house prices will stop falling. In the long-run, it will be the performance of the manufacturing and service exports that will have a far more decisive effect on the economy than temporary housing-related problems.