Perspectives on the Irish Economy Post author By Philip Lane Post date August 30, 2011 The Irish Times is running a series of articles this week, which draw on the latest edition of The Economy of Ireland book (edited by John O’Hagan and Carol Newman). Today’s contribution is by Jonathan Haughton – you can read it here. Categories In Uncategorized 19 Comments on Perspectives on the Irish Economy ← Debt Overhang → Vacancy: Secretary General of Department of Jobs, Enterprise and Innovation 19 replies on “Perspectives on the Irish Economy” The confidence fairy is back. The Slua Sí are going to murder it. Most of the article is excellent, so I don’t want to criticise it. However, I would take issue with one point. He says: “So the economic boom, which began about 1995, was not mere smoke and mirrors. It was also completely unexpected.” I wouldn’t say it was unexpected at all. Economic growth had been gathering pace in Ireland since 1987. As the author himself says; “Ireland’s gross domestic product (GDP) grew every year between 1986 and 2007.” The boom didn’t start in 1995. It started in 1987. I am not saying that this particular author is guilty of it, but the conventional wisdom in Dublin 4 media and academia circles that it began in 1995 is politically-driven, fulfilling their requirement that the commencement of the boom be seen to have begun under any government but an FF-led one. These are the figures for real GDP growth annually from 1987 to 2007: 1987 +3.6% 1988 +3.0% 1989 +5.6% 1990 +7.7% 1991 +1.6% 1992 +3.6% 1993 +2.3% 1994 +5.9% 1995 +9.6% 1996 +7.6% 1997 +10.9% 1998 +7.8% 1999 +9.9% 2000 +9.3% 2001 +4.8% 2002 +5.9% 2003 +4.2% 2004 +4.5% 2005 +5.3% 2006 +5.3% 2007 +5.6% As can be seen, contrary to what subsequent generations have been taught, there were quite a few years of high growth in the late 1980s. The ‘1980s’ actually ended in 1986. It is true that growth slowed down in the early 1990s before taking off again in 1994 (not 1995), but it must be remembered that there was a very severe global recession in the early 1990s and most countries had negative growth in those years, none more so than the UK, which had in those years a recession comparable to their 1980s recession or their 2008/09 recession. Ireland completely escaped it. In addition, this was not the first long boom in Ireland. There was an even longer boom from 1958 until 1982, 24 consecutive years in which GDP grew evey year, by an average of over 5% annually. So, in my lifetime (I am 62) there have been 2 long booms in Ireland, one from 1958 to 1982 and one from 1986 to 2007. I have every reason to expect to see a third of similar length before I pop my clogs. The fact is that high growth is the norm in Ireland for the reasons the author of this article has outlined. No one can be certain when the next boom will begin, but, whereas a year ago I was virtually on my own in predicting, we are now seeing more and more articles similar to this one. Just to back up the point I made above about seeing more and more articles similar to the IT one, lo and behold, here is Wilbur Ross saying the very same thing this evening. http://www.bloomberg.com/news/2011-08-30/ireland-to-lead-europe-s-recovery-from-debt-turmoil-ross-says-tom-keene.html And still more, this one on CNBC earlier today: http://www.cnbc.com/id/44310831 Such articles are starting to come thick and fast. Regarding Ireland’s greatly over-rated doomsters, who have spent the past several years predicting armageddon for the Irish economy, and who may well have gambled on their predictions coming true, I would say that they are in deep doodah, with their only hope of avoiding big losses, both financially and reputationally, being another severe global recession. @JtO: “Most of the article is excellent, …” John, are you really, genuinely serious? Its prime Spinola, Bertie goobledegook. Paper does not refuse the ink John. But reality is what it is, whether folk choose to pretend otherwise. Our economy is in Regression John. I hope it stops mid 1990s, we have gotten to 2000 already. Brian Snr. “As the author himself says; “Ireland’s gross domestic product (GDP) grew every year between 1986 and 2007.” ” Past performance is not necessarily a guide to future experience. As the Tyrone fans say, Tyrone won 3 all Irelands in the last decade. So what ? Where are they now? So John, how did the “doomsayers” gamble? @John the Optimist Yes it started in 87 but the post Maastricht credit boom got going during the 94 / 95 period. I remember my impression of it so well – the strangeness of it all , I was so angry really. The credit opium flowed through our veins and we became consumed by Greed. The Summer of 95 was a bittersweet period as it was the last time the Irish Landscape had some beauty before we despoiled it for short term gain. You seem to be obsessed with GDP figures John – the blunt force radioactive nature of such a crude metric seems to be lost on you. Perhaps you are but another victim of the opiate , perhaps. There is a abstract idea known as Elegance – end use real consumption and long term investment is what matters. If credit rises faster then long term GDP growth something is very wrong with your worldview and economic outlook. He correctly identifies the boom to 2001 as having been real and valid, though he fails to credit an important cultural aspect, chiefly increased labour force participation. It wasn’t just that employment fell, as if not more important was the advent of the double income couple, with both partners having ‘serious’ jobs. Also the growth prospects due to increased MNC presence are limited: 1) The surplus people in the PS would not be able for the pace of such employment, so we will need to continue the PS ‘workfare’ stimulus spending 2) US companies are turning ever more towards Asia, e.g. China for manufacturing and India for services. I think we’d a ‘windfall’ influx of US employment, not likely to be repeated. I have a question not exactly related to the above article but if anyone can answer it, that would be great. So the Irish Government has over funded the banks by 10 billion, just in case the worst case scenario materializes and there is a mass of defaults. What if, in Bank of Ireland for example, these losses don’t fully materialize and the money is not used for this purpose. What will happen to that money? Can the owners of a bank decide to divide up whatever excess there is over the minimum required for a bank to have? Astoundingly uninsightful article. Definitely “comment” rather than “analysis” – I would suggest that the editor rename the whole section of the paper just “analysis” to prevent this rubbish appearing in future. @jto I respect your opinion but would it not be wise to acknowledge the possibility that you might be wron (and I would say the same to doomsayers as well). There is not some predetermined path we are destined to go down and either you or the doomsayers are correct. There is an infinite number of possibilities, including unlikely ones even more optimistic than you, and equally unlikely ones more pessimistic than the most depressing doomsayer. Our eventual path will depend on decisions we take, decisions others take, and random events with the last two probably having a much greater impact. Now if you want to argue that your general prediction (high growth soon) has a very high probability (would be interested to hear what you would put it at) that is fair enough but no outcome is close to certain. @ JTO Good on you. Half agree with you. We definitely have great advantages – just worried about this next 4bn and where it’ll leave us It can be good to highlight some positives but this article suggests that the author has a superficial knowledge of the Irish economy. Positives could be highlighted about many economies — US, Japan, Italy etc — but as with say embattled Nokia, past glories count for little if there is not a serious adjustment to changed circumstances. In the period 2001-2007, 5000 net jobs were created in goods and services, which are categorised as internationally tradeable. This was both in FDI and indigenous firms. This year IDA Ireland’s net additional jobs target is below 4,000 and while the big existing base of FDI gives a good headline figure for new investment, check out the typical new greenfield project that is being won (beware UNCTAD also terms reinvestment by existing firms as ‘greenfield’). Prof Haughton refers to ‘entrepreneurial spirit’ but this is said often enough to accept the delusion as fact. It however can be said about Italy. Almost all our tradeable exports are made by foreign firms (90%) while data shows that a low percentage of SMEs export compared with other European countries. The US economy is going to struggle for many years more; about 20 US firms in the pharma/medical devices sectors are responsible for 60% of merchandise exports and the pharmaceutical industry is also under siege. So FDI will not be an engine of jobs growth. The ‘smart economy’ fairytale is not going to be an engine of jobs growth either. A lot can be conjured up from behind a desk . The international food commodity boom will be of some help and dare I say it, some recovery in construction. As for earnings in an open labour market, why would Ireland escape the compression of earnings that has been experienced over many years in the US and Japan? Finally on fairytales, I never expected that Richard Bruton would become the spinmeister of the new government. Read this statement from the DETI on last week’s trade data from the CSO: http://www.djei.ie/press/2011/20110823.htm Maybe we should believe that Irish entrepreneurs are responsible for all the exports. As for “exports to India, (where the Minister led a trade mission earlier this year) growing by 30% to €83 million” – – impressive that Bruton’s few days in India in April produced that jump in Jan-May exports. @Actuary I respect your opinion but would it not be wise to acknowledge the possibility that you might be wron (and I would say the same to doomsayers as well). JTO again: Of course, I could be wrong. So could anybody. They don’t need to say it all the time. Unless they have explicitly stated that they can not be wrong, it is reasonable to assume that they acknowledge that possibility, otherwise it would be tiring and repetitive if they finished every comment with ‘of course, I could be wrong’. I have never claimed to be infallible, which Paddy Power will vouch for, having pocketed £10 of my hard-earned money after the Dublin v Donegal match on Sunday. @ MH It looks like food prices have decent growth potential. Ireland should make a lot more out of its advantages in this area. There must be more the country can do with quality cheese and meat production. Our local cheese shop in Switz. has over 50 fabulous cheeses but nothing from Ireland and only Stilton from the UK. @JTO Maybe its just me but the huge uncertainty about our future path doesnt come across in any of your posts. Dont want to pick on you as very few posters seem to grasp this. Everyone basically argues that one scenario or another is going to happen when it is impossible to know this. Yet to say an article talking about the huge range of possibilities, and the limited influence we actually have on which eventual path we go down. @ JTO You bet in pounds? Were you to be paid in Euro? Are you using Paddy for a bit of Forex trading as well? Canny or what! @Eureka You bet in pounds? Were you to be paid in Euro? JTO again: Yes, I bet in pounds, as I bet from Belfast, which, as of last Saturday when I placed the bet, still had the £sterling as its unit of currency. I wasn’t paid in anything. I bet on Donegal. @JTO to be honest thought it was punts for a while – the way things are going. Comments are closed.