It has been an extraordinary year for the economy, with the latest estimates showing that growth in GDP may reach 7 per cent. The unemployment rate, while still high, has fallen below 10 per cent and the final exchequer figures for the year could conceivably show that the exchequer finances, in cash terms, were close to a balanced position this year.
It is important both to recognise this progress and to acknowledge that there is much left to be done. Ireland stuck with the economic programme and the results have been better than anyone could have expected. Helped by a period of low interest rates and a falling euro, and buoyed by strength in some key economic sectors, the economy has made strong gains.
The official figures no doubt overstate what might be termed the “ real” level of growth, but the bounceback has nonetheless been quite remarkable. A year ago there was a widespread feeling that the much-anticipated recovery had simply not arrived for most people, and tens of thousands took to the streets as much to register this feeling as to protest against the water charges. Now, with rising employment and wage increases in many sectors, there is no doubt that the recovery has arrived.
The scars of the crisis remain, however, and the recovery has not been felt by all. Unemployment remains high, many households remain mired in mortgage debt and some parts of the country have felt little enough by way of an economic uplift. There is a housing crisis – a legacy of under-investment in recent years. And many younger people still face job insecurity and, in many cases, high rents or boom-time mortgages.
Against this backdrop, the initial soundings from the forthcoming general election campaign have not been particularly encouraging. So far most of what we have seen are promises of a bit more cash in people’s pockets via lower taxes or higher welfare payments.
It is questionable whether all these can be afforded, though if growth remains strong the next government should have some scope. However, the more fundamental issue is the need for a vision of where the economy goes next, how we can find resources for vital investment and how vital services like health and education can be reformed and paid for.
Resilient exports
Business has had a better year, benefiting from the improved economic conditions. The export sector was resilient through the crisis and quickly returned to growth. Many industries are now performing strongly – including key areas of the tech sector, the food industry and pharma – and some are running up against skill shortages.
The recovery was slower arriving for companies depending on the domestic economy, but here, too, recovery is being felt, although many towns and villages lost so heavily in recent years that they continue to struggle. Professional service firms are doing well, as are key areas of the international financial services sector. On a smaller scale, evidence of new company formation suggests that the entrepreneurial spirit has survived the downturn.
As with the economy overall, problems remain. Many smaller businesses remain weighed down with debt, even if the banks are finally starting to deal with this. The banking sector is not yet back to full health. The overall level of credit continues to fall, year on year, though this also reflects a lack of demand.
Businesses will head into 2016 with some level of confidence and a hope for stability, though they will also be aware of the international risks, centred on fears that the euro zone will remain mired in a period of exceptionally low growth and that international growth will suffer.The key policy goal will be maintaining stability and confidence so that businesses remain confident to invest.
Stability and investment
This theme of stability and investment needs to move centre stage in our investment debate. Most political parties pay lip service to it, but the rush of pre-election commitments suggests they believe that the electorate can still be won over with promises of lower taxes and higher spending. Something more sophisticated is surely now called for. In the wake of the terrible economic crisis, the emphasis must be on finding models for long-term economic growth which are sustainable – economically, socially and, indeed, environmentally.
The recovery in the economy has been heartening and has demonstrated significant resilience. We have come out the far side of austerity, but not without considerable damage and helped by an extraordinarily benign economic climate. This may not continue.
As well as the euro zone growth fears, the threat of a British EU exit is real and could cost us significantly. We need to use the current period of strong growth to reduce our debt, start to rebuild investment and develop a model of tax and spending which will avoid the boom and bust cycle.
There are new challenges here which are not answered by old-style election promises.