Belfast Telegraph

Saturday 2 August 2014

Is the Republic of Ireland's economy really back on track?

The Republic has said it will become the first eurozone country to exit an international bailout

Taoiseach Enda Kenny
Taoiseach Enda Kenny

Kildare was a typical Celtic Tiger boom town. Once plagued by the constant trundle of articulated trucks through its main street, it was transformed in 2003 when the main Dublin-Cork motorway opened, relieving it of the traffic chaos that made it a bottleneck, and attracting young Dublin couples fleeing the rocketing property prices in the capital 35 miles away.

Then came the crippling recession, a slump in the price of those houses that just a few years earlier had been such an attractive option for those young couples, and austerity measures that many argue have put the Irish economy back by years.

Since 2008, the Republic's economy has been stymied by a lack of growth and a lack of investment. Its young people attempt to leave for brighter opportunities, or stay to a very uncertain future.

But now, for the first time in years, some Irish businesses are optimistic about the future. Fergal O’Brien, the chief economist at the Irish Business and Employers’ Confederation (IBEC), says jobs are finally being created, he explains, and although the next two government budgets will include further cuts in public spending, the cuts will not be as deep as previously.

In the medium to long term, he expects the annual growth rate to return to 3 per cent or more. “The budgets should take about 1.5 per cent out of the economy, but we’ve had budgets that cut twice as deep as that, and after 2015 the budget cutbacks should be completed,” he says.

In particular, export-led businesses are well placed to exploit a recovery in international sentiment, he says. He even sees room for optimism in the construction industry, which reported 8,000 new housing starts last year.

“We will never get back to the level of 80,000 starts we saw at the peak,” he says, “and we wouldn’t want to. But employment growth is returning, and we should be able to get to a level of about 30,000 starts.”

Mr O’Brien’s view received official endorsement at the weekend, when the Taoiseach, Enda Kenny, announced that in mid-December Ireland would become the first eurozone country to exit an international bailout, and could do so without further financial assistance from other European countries.

“There’s still a long way to go. But at last, the era of the bailout will be no more,” Mr Kenny said to loud applause a party rally on Saturday.

“Two years ago, I addressed the Irish people and said that I wanted to be the taoiseach who would retrieve our economic sovereignty and independence,” he said. “This goal is now within our grasp.”

Other economists have cautiously welcomed the news, but warn that despite the thawing of the economic ice, there is still much to do. “Ireland had gone through a balance-sheet recession of unprecedented proportions,” says Constantin Gurdgiev, an economist and academic at Trinity College Dublin. “Given the severity of Ireland’s crisis to date, we can expect under normal conditions a recovery period of subdued growth and continued pain.

“Perhaps we will be able to put in place the right set of reforms. So far we are not really there yet, but we can get there – that’s possible.

Mr Gurdgiev praises export-focused domestic companies, which compete with such multinationals as Google to attract talented graduates, as “better on average than the big multinationals because they don’t have the benefit of tax arbitrage. They have to operate on a basis of pure competitiveness”.

But he says the domestic economy is still shrinking, as is the public sector, and the export sector “is too small to carry the entire country on its shoulders.”

One example of the new Irish economy is the so-called Web Summit, which began in the midst of the recession in 2009 as an event for 200 people. It has grown to become Europe’s biggest technology conference with 10,000 people attending and 950 start-ups from more than 90 countries exhibiting.

The event’s chief executive, Paddy Cosgrave, says: “This year we have CEOs of 199 private technology companies that have raised $5.9bn [£3.7bn] of funding attending the event as well some high-profile people speaking in Dublin, people from the World Economic Forum, Evernote CEO Phil Libin and Skype founder Niklas Zennstrom.”

Last weekend the IMF published a report on Ireland’s progress. It might be summarised as “A lot done, more to do” – the election slogan of then-governing Fianna Fáil party at the height of the Celtic Tiger boom in 2002 – with its warnings about the continued fragility of the banking sector and the need to stick to government commitments to cut spending.

Ahead of the release of the IMF report, ministers pointed to declining unemployment, which dropped to 13.1 per cent from its mid-recession peak of 17.3 per cent, even if the figures are helped by the almost 200,000 people who have left the country since 2008.

Some of these economic migrants are now planning to return. Aileen Donegan, from the Dublin suburb of Clondalkin, works in Strasbourg with the No Hate Speech movement, a project supported by the Council of Europe, but she expects to return to Ireland early next year.

“I really miss home. It’s more than likely I’ll be back next year,” she says. “I wasn’t working before I headed off. I had just finished an internship.

“But I do want to get home if I can, I really miss Dublin. It’s crazy – I hadn’t planned on living abroad at all.  There was nothing happening in Ireland, there was nothing happening where I was at the time, nothing related to what I wanted to do in life, which is in journalism. It just wasn’t available so I decided to take my chances and leave.”

Ms Donegan is only one among many, but her intention indicates, at least among the expat community, that the fear created by the economic meltdown of 2008 is receding.

There is a long way to go, and the Celtic Tiger may morph into something more akin to a domestic cat, but it could just be that the worst is over for the Republic’s economy.

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