You may not feel it in your pocket, but the wounds of Ireland’s economic crisis really are slowly beginning to heal. GDP figures published earlier this month show that the size of the economy in the first three months of 2014 was bigger than at any time since the end of 2008 and exports hit a new high.
There is certainly no cause to crack open the champagne bottles, but it does show that an ‘export-led’ recovery is gaining traction. The problem is that it doesn’t feel to most people like there is a strong recovery underway.
By far the biggest component of the domestic economy is personal consumption, which has been essentially flat since the start of 2009, despite Ireland having a population that is growing quickly compared to our European neighbours. This means that ordinary people continue to spend less and less, and this is why many people don’t ‘feel’ the recovery yet.
On the jobs front, however, the numbers have been unambiguously positive, with roughly 900 full-time jobs created every week in the year to the end of March. This is matched by a steady reduction in the unemployment rate, which had fallen to 11.6% by the end of June. Yes, this is still high, and yes, an improvement of roughly 0.1% per month may not sound like a lot, but important progress is being made. Labour market conditions are improving faster in Ireland than in many crisis-stricken countries.
Unfortunately, while getting a job can make a big difference in the economic fortunes of the household concerned, the vast majority of people have seen their incomes fall or stagnate in recent years while new and higher taxes and charges continue to chip away at disposable incomes. Coupled with the need to pay down boom-time debts, this means most people can’t equate the rosy headlines with their own situation. Too many people are still struggling to make ends meet.
The good news is that, even if it feels like GDP growth doesn’t feed through to having more money in your back pocket, it does reduce the government’s debt burden. More importantly for ordinary people, it also reduces the extent to which they will need to take more money out of the economy come budget time if they are to bring the deficit for 2015 below the 3% of GDP target.
With so many people still unemployed, any wage growth is likely to remain muted for some time. Austerity is nearly over, but not quite, and even then there will not be much room for tax cuts or spending increases. Household debt levels may be falling, but they are still so high that this will continue to impact on spending decisions for many families. All these reasons taken together mean that personal consumption is unlikely to surge in the coming years, leaving exports and investment to do the heavy-lifting on economic growth.
Most Irish people have been hit hard by the economic crisis and have largely acquiesced as the government dished out fiscal pain to balance the books. The headline economic numbers may be improving, but even if the pace of the ‘export-led’ recovery does pick up, it will take time for this to feed through to improved living standards for very many families.