The continued strength of the Irish economy has been remarkable. Despite a slowdown in Britain and continental Europe, escalating trade wars globally and the huge uncertainty generated by Brexit, Ireland’s economy continues to grow solidly.
That is all the more remarkable because small open economies can be like canaries in a coal mine – often they are the first to show signs of ailing when the wider international environment turns down.
The performance is even more remarkable because economies which do a lot of international trade are invariably hit hardest by international slumps. That is happening to Germany, the most trade dependent of the big European economies.
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The head of the German employers’ organisation, Joachim Lang, was in Dublin last week. “This will not end well,” he glumly remarked about pretty much everything when speaking at the Institute of International and European Affairs (where I work). With the German manufacturing sector already in recession, “we’re heading for trouble”, he added for good measure.
When bosses speak like this, it is not a good sign. Business people are upbeat by nature. They are more interested in opportunities and can be blindsided by threats (economists may have exactly the opposite weakness). They usually don’t like to ”talk the economy down” because corporate pessimism can put the frighteners on people, thereby making things worse than they already are.
If the international picture has darkened, Irish consumers and businesses have mostly brushed worries aside when it comes to what they are actually doing. There have certainly been some negative effects coming from Brexit uncertainty and related sterling weakness, but the range of indicators on the economy’s dashboard are almost all showing continued momentum in the economy.
It is always good to know that the economy has momentum. At a time when it faces being hit by the Brexit truck, it needs all the momentum it can get.
Let’s start with the good news. Wage growth is surging. Not only are earnings rising by 4pc a year, the rate of increase has been accelerating over the past three years. When pay is rising, more people have more money to spend, to save or to pay down their debts.
This is all happening when inflation is almost as dead as a dodo. In August, consumer prices were half a per cent higher than a year earlier. They remain below their historical peak of September 2008. That is worth repetition – the price of all goods and services that people consume is lower today (marginally) than 11 years ago.
Among other things, that means that the 4pc increase in average earnings across the economy is hardly being eroded by inflation, as happened so often in times past. The real increase in earnings being clocked at the moment is high by any measure going back decades.
Wages and salaries are growing strongly because employers are competing with each other to hire. One of the most frequent topics of conversation among bosses these days is the problem of finding the right people.
The increase in the numbers at work – now approaching half a million since 2012 – has soaked up most of the unemployed. With the rate of joblessness down to just over 5pc, it’s a sellers’ market for those offering their labour. That’s good for workers, but not so good for employers who aren’t making money and risk going to the wall.
More good news came with last Thursday’s dole figures. They showed that the number of people on unemployment benefit continued its eight-year fall in August. There are still more than 75,000 people who have been signing on for a year or more, so there’s no room for complacency, but the economy is not far from full employment.
So with unemployment low and real incomes rising, the consumer is doing well. That’s important not only because that is what matters to most people, but also because consumer spending remains such a central part of the overall economy.
Excluding new car sales, which have fallen owing to a surge in second-hand imports, retail spending is rising by around the same rate as wages.
A point is worth making about what Irish consumers have been doing with their money recently and how they feel. Usually, if people are worried about the economy, they pull in their horns. Sentiment and behaviour move in the same direction. In Ireland recently, that has not been the case.
While consumer sentiment tanked over the past year and more, growth in consumer spending has continued. In other words, how consumers are feeling and how they are acting have decoupled.
Perhaps the most remarkable aspect of the Irish economy’s performance this year has been the export performance. How much stuff companies based here ship overseas is a vital metric. As a trade-dependent economy, we export most of what we produce and import more of what we consume.
The most up-to-date figures on goods sold abroad show a 10pc increase in the value of exports (seasonally adjusted) in the first half of the year, compared to the same period in 2018. This is little short of extraordinary given that the European economy – all 28 EU countries – is experiencing a marked slowdown and that cross-border commerce globally is weak, in part as a result of the trade wars US president Donald Trump is waging.
There was one aspect of those figures that caused concern. In June, the most recent month for which figures are available, exports contracted on the same month in 2018. That may not be significant – the figures are very volatile. But it could also be a sign that weaker international demand is belatedly hitting Ireland’s exporters. The July figures will be worth watching when they come out in a couple of days.
Few people will be watching those figures more closely than the Budget number crunchers in the Department of Finance. They have an even more difficult job this year than usual. Framing next year’s Budget is a nightmare given that a no-deal Brexit could happen just a couple of weeks after it is unveiled.
That said, the most recent public finance figures give some cause for reassurance. In the first eight months of the year, all the main revenue streams grew at a healthy pace and the rate at which cash has been flowing into the State’s coffers is holding up. The tax numbers corroborate other indicators showing that the economy continues to purr.
But for all that, the weak underlying position of the public finances means that there is little gas in the tank to stimulate the economy if no-deal Brexit happens and/or if the European and wider global economies turn down. With a mountain of Government debt already accumulated, the State just cannot afford a big hit to its revenues.
If no-deal Brexit happens and the effect on the Irish economy is a short sharp shock, the Government will probably get away with it. But if there is a deep and protracted recession – as a no-deal exit could easily cause – then all budgetary bets are off.
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Home » Analysis & Comment » Dan O'Brien: 'Our economy continues to grow despite Brexit fears'
Dan O'Brien: 'Our economy continues to grow despite Brexit fears'
The continued strength of the Irish economy has been remarkable. Despite a slowdown in Britain and continental Europe, escalating trade wars globally and the huge uncertainty generated by Brexit, Ireland’s economy continues to grow solidly.
That is all the more remarkable because small open economies can be like canaries in a coal mine – often they are the first to show signs of ailing when the wider international environment turns down.
The performance is even more remarkable because economies which do a lot of international trade are invariably hit hardest by international slumps. That is happening to Germany, the most trade dependent of the big European economies.
Please log in or register with Independent.ie for free access to this article.
Log In
New to Independent.ie? Create an account
The head of the German employers’ organisation, Joachim Lang, was in Dublin last week. “This will not end well,” he glumly remarked about pretty much everything when speaking at the Institute of International and European Affairs (where I work). With the German manufacturing sector already in recession, “we’re heading for trouble”, he added for good measure.
When bosses speak like this, it is not a good sign. Business people are upbeat by nature. They are more interested in opportunities and can be blindsided by threats (economists may have exactly the opposite weakness). They usually don’t like to ”talk the economy down” because corporate pessimism can put the frighteners on people, thereby making things worse than they already are.
If the international picture has darkened, Irish consumers and businesses have mostly brushed worries aside when it comes to what they are actually doing. There have certainly been some negative effects coming from Brexit uncertainty and related sterling weakness, but the range of indicators on the economy’s dashboard are almost all showing continued momentum in the economy.
It is always good to know that the economy has momentum. At a time when it faces being hit by the Brexit truck, it needs all the momentum it can get.
Let’s start with the good news. Wage growth is surging. Not only are earnings rising by 4pc a year, the rate of increase has been accelerating over the past three years. When pay is rising, more people have more money to spend, to save or to pay down their debts.
This is all happening when inflation is almost as dead as a dodo. In August, consumer prices were half a per cent higher than a year earlier. They remain below their historical peak of September 2008. That is worth repetition – the price of all goods and services that people consume is lower today (marginally) than 11 years ago.
Among other things, that means that the 4pc increase in average earnings across the economy is hardly being eroded by inflation, as happened so often in times past. The real increase in earnings being clocked at the moment is high by any measure going back decades.
Wages and salaries are growing strongly because employers are competing with each other to hire. One of the most frequent topics of conversation among bosses these days is the problem of finding the right people.
The increase in the numbers at work – now approaching half a million since 2012 – has soaked up most of the unemployed. With the rate of joblessness down to just over 5pc, it’s a sellers’ market for those offering their labour. That’s good for workers, but not so good for employers who aren’t making money and risk going to the wall.
More good news came with last Thursday’s dole figures. They showed that the number of people on unemployment benefit continued its eight-year fall in August. There are still more than 75,000 people who have been signing on for a year or more, so there’s no room for complacency, but the economy is not far from full employment.
So with unemployment low and real incomes rising, the consumer is doing well. That’s important not only because that is what matters to most people, but also because consumer spending remains such a central part of the overall economy.
Excluding new car sales, which have fallen owing to a surge in second-hand imports, retail spending is rising by around the same rate as wages.
A point is worth making about what Irish consumers have been doing with their money recently and how they feel. Usually, if people are worried about the economy, they pull in their horns. Sentiment and behaviour move in the same direction. In Ireland recently, that has not been the case.
While consumer sentiment tanked over the past year and more, growth in consumer spending has continued. In other words, how consumers are feeling and how they are acting have decoupled.
Perhaps the most remarkable aspect of the Irish economy’s performance this year has been the export performance. How much stuff companies based here ship overseas is a vital metric. As a trade-dependent economy, we export most of what we produce and import more of what we consume.
The most up-to-date figures on goods sold abroad show a 10pc increase in the value of exports (seasonally adjusted) in the first half of the year, compared to the same period in 2018. This is little short of extraordinary given that the European economy – all 28 EU countries – is experiencing a marked slowdown and that cross-border commerce globally is weak, in part as a result of the trade wars US president Donald Trump is waging.
There was one aspect of those figures that caused concern. In June, the most recent month for which figures are available, exports contracted on the same month in 2018. That may not be significant – the figures are very volatile. But it could also be a sign that weaker international demand is belatedly hitting Ireland’s exporters. The July figures will be worth watching when they come out in a couple of days.
Few people will be watching those figures more closely than the Budget number crunchers in the Department of Finance. They have an even more difficult job this year than usual. Framing next year’s Budget is a nightmare given that a no-deal Brexit could happen just a couple of weeks after it is unveiled.
That said, the most recent public finance figures give some cause for reassurance. In the first eight months of the year, all the main revenue streams grew at a healthy pace and the rate at which cash has been flowing into the State’s coffers is holding up. The tax numbers corroborate other indicators showing that the economy continues to purr.
But for all that, the weak underlying position of the public finances means that there is little gas in the tank to stimulate the economy if no-deal Brexit happens and/or if the European and wider global economies turn down. With a mountain of Government debt already accumulated, the State just cannot afford a big hit to its revenues.
If no-deal Brexit happens and the effect on the Irish economy is a short sharp shock, the Government will probably get away with it. But if there is a deep and protracted recession – as a no-deal exit could easily cause – then all budgetary bets are off.
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