Many countries will be plunged into recession next year as the global economy stalls in the face of high inflation, the Organisation for Economic Co-operation and Development (OECD) warned this week.
Both the OECD and the Irish Fiscal Advisory Council (Ifac) said Ireland would experience a sharp slowdown but not a recession. Have we dodged a bullet? Not really. By definition, a recession requires back-to-back quarters of negative growth.
Growth will remain positive here largely because of multinational exports but that won’t shield households from the compression in real income that awaits them. Real incomes are expected to contract by 4-5 per cent this year and 3 per cent next year.
Purchasing power
That’s because incomes aren’t keeping pace with inflation, and household purchasing power is being eroded as a result. Put another way, we’re getting poorer. Energy, food, petrol, clothes, a pint in the local pub are all becoming that bit more expensive.
The reversal in real income is the biggest households here have faced since the biting austerity budgets implemented in the wake of the 2008 financial crisis. It will push many to the pin of their collar and beyond. A general reversal of 4-5 per cent implicitly means many will experience a much sharper decline in living standards.
The Central Statistics Office’s latest Survey of Income and Living Conditions, published on Wednesday, suggests the number of people in Ireland suffering “enforced deprivation” has risen sharply, from 13.8 per cent last year to 17.1 per cent in 2022, on the back of rising energy and food costs.
This equates to approximately 872,000 people having to forgo basic necessities like heating, new furniture and a new coat.
So while avoiding recession is a positive in headline terms, it won’t make the next 12-18 months any easier for households. The real feel in the economy is always a lot cooler than the headline gross domestic product numbers suggest.
