Central Bank Quarterly Bulletin (QB 1 2018) published

Today, the Bank published its first Quarterly Bulletin (QB 1 – January 2018) of the year, including forecasts to 2019. The outlook remains robust with GDP forecast to grow by 4.4 and 3.9 per cent in 2018 and 2019, respectively. This forecast is underpinned by strong domestic demand and broad based employment gains.

Some of the highlights include:

  • the increasing prospect of full employment – we see the unemployment rate falling towards 5 per cent by next year with an additional 89,000 persons in employment.
  • the composition of employment is likely to differ markedly relative to the previous employment peak (in 2007). Back then, 1 in 9 persons were directly employed in construction relative to 1 in 16 expected in 2019.
  • Inflationary pressures remaining subdued but picking up from 0.7 per cent this year to 0.9 per cent in 2019. This partly reflects an unwinding of the negative impact on goods prices from recent euro/sterling exchange rate movements. (For more on exchange rate pass through, see Reddan and Rice (2017)).
  • The main risks relate to Brexit, the global trade and taxation environment as well as domestic overheating.

As regards the latter, a key question at present is the extent of remaining slack within the economy and prospects for wages and employment. Recent research within the Bank (Linehan et al., (2017) and Byrne and Conefrey (2017)) have addressed some of these issues. Further, the newly published labour market data (documented in the Bulletin) indicate that broader measures of labour supply signal that that there is still additional labour supply available. All of this suggests that while labour market conditions are tightening, there is still scope for unemployment to fall further before more significant wage pressures emerge.

Irish Economy

In terms of the Irish economy, the Bulletin contains short Boxes on:

  • international economic outlook (Box A – page 12)
  • the recovery in personal consumption expenditure (Box B – page 15)
  • trade deflators dynamics (Box C – page 21)
  • the new labour force survey (Box D – page 24).

Financing Developments

On the financing side of the economy, there are short pieces on:

  • household debt and disposable income (Box A – page 38)
  • the statistical treatment of new bank holding company structures (Box B – page 44 )
  • holders of Irish resident investment funds shares across the Euro Area (Box C – page 46).

Finally, the Bulletin also includes a signed article by Kelly and Osborne-Kinch (2018) looking at new quarterly statistics on insurance corporations.

A teachable moment

I have an op-ed piece in today’s Irish Times, available here.

Independent Ireland in Comparative Perspective

I gave the economics lecture at the recent national conference at NUIG commemorating the centenary of the Easter Rising. I had three main messages. First, the economic history of post-independence Ireland was not particularly unusual. Very often, things that were happening in Ireland were happening elsewhere as well. Second, for a long time we were hampered by an excessive dependence on a poorly performing UK economy. And third, EC membership in 1973, and the Single Market programme of the late 1980s and early 1990s, were absolutely crucial for us. Irish independence and EU membership have complemented each other, rather than being in conflict: each was required to give full effect to the other. Irish independence would not have worked as well for us as it did without the EU; and the EU would not have worked as well for us as it did without political independence.

There is a podcast available here. Since only audio is available, here is a link to my slides. I’m working on a paper version of the talk and will post a link to this as soon as possible.

The fatal flaw of the populist approach

The world is awash with populists. From Ireland’s independents to President Duterte of the Philippines, from Germany’s anti-immigrant AfD party to Norbert Hofer of the far-right Freedom Party of Austria, from Ukip and Jeremy Corbyn in Britain to Donald Trump in the US, populists are on the rise. And we’re not talking just a few random demagogues here, though personality does go a long way. (Trump-related Pulp Fiction pun intended, by the way.)

We are seeing a rise in populist parties getting and holding onto power in several European countries including Finland, Hungary, Latvia, Lithuania, Norway, Ireland and Switzerland. Iceland is about to elect the Pirate Party (no really) to power. The French Front National may well take power in France, riding a wave of anti-immigrant sentiment there.

Populists come from both sides of the political spectrum: Greece’s Syriza party and Spain’s Podemos party consider themselves of the left, while Germany’s AfD and France’s Front National are on the far right.

So it’s a problem. Old, established, centrist parties have lost their grip on power – spectacularly so in Greece – while newer parties are standing mostly on a basis of what they are not – Corbyn is not a Blairite, Marine Le Pen is not Nicolas Sarkozy, and so forth. The 32nd Dáil contains 19 TDs who are nominally ‘independent’, with 12 more in left or far-left groupings. Ireland does not produce far-right TDs that often, though it does produce some very right-wing policies from time to time.

That 26% growth rate: two weeks on

The recent publication by the CSO of the 2015 National Income and Expenditure Accounts generated a lot of reaction.  There is no doubt that a 26.3 per cent real GDP growth is bizarre but it was not farcical, false or based on fairy tales.

Many commentators went out of their way to highlight that the figures did not characterise what was happening “on the ground” in the Irish economy.  But this seems like a bit of a strawman.  Instead of being told what the figures were we were been scolded over what they weren’t.  No one said the economy was growing at 26 per cent.  Arguments against using GDP in an Irish context have made for the past quarter of a century.  Even as recently as March, when the first growth estimates for 2015 were provided, there were plenty of people who pointed that the underlying growth rate of the economy was probably around half of the 7.8 per cent growth rate in real GDP shown at that time.

But a 26.3 per cent real GDP growth rate is very very unusual.  And one that deserves understanding rather than dismissal.  However, the discussion of the figures has generated more heat than light.  At the briefing it seems three items were identified as having oversized effects on the national accounts’ aggregates. These were:

  • aircraft leasing
  • inversions and corporate restructurings, and
  • asset transfers to Ireland