Belfast Telegraph

View from Dublin: Finally it feels like the purse strings are loosening

By Richard Curran

Lots of people had a pep in their step this Christmas. Overall spending was up but you could see it anecdotally. Some people were spending a little more on presents than previous years, or re-introducing others to the Christmas list, who had dropped off in more belt-tightening days of the recession.

This wasn't the madness of the Celtic Tiger days. There wasn't a sense it was Christmas splurges financed purely by credit cards or money people don't actually have. Yet, there was something about the end of 2017 and the beginning of 2018 that felt different - in a good way.

Gerard Brady of Ibec put it well this week when he said 2017 marked the end of the "recovery" phase. After five years of boom, five years of bust, we have just come out of five years of recovering. And like the patient after an operation, we have been getting better, but now finally can say we are well again.

But just what sort of health are we in? Figures pulled together by Ibec for its Quarterly Economic Outlook should, at least on paper, leave us feeling euphoric. Here are some key stats.

The total amount of loans owed by Irish households has fallen by €60bn since the start of the crash. We now have €4bn more of savings than outstanding household loans. Irish households had €16.5bn more on deposit than 10 years ago. Last year there were 55,000 net new jobs created. Earnings rose an average of 2.2%, four times faster than the EU average.

And the piece de resistance is the statement that post-tax income in working households is now estimated to be higher than it was a decade ago, and therefore higher than ever before.

Taking all of this at face value, the turnaround in our economic fortunes has been quite remarkable. Go back to 2011 and house prices were still falling at around 10% per year. We had one of the highest debt to GDP ratios in the world. Taking our sovereign debt and our household debt together, Ireland was one of the most indebted countries in the OECD per capita.

As recently as 2014, the exchequer was running a deficit of around €8bn. This year it is likely to be zero. Unemployment peaked at 15.2% at the bottom of the crash.

The turnaround has been remarkable, swift, unforeseen and very welcome. But is it real and sustainable and how come living in Ireland doesn't quite feel as wonderful as the positive statistics might portray?

The turnaround has been largely driven by a combination of external economic forces outside our control and government decisions we were forced to make by the troika as part of the bail out programme.

This is not to say Irish governments can take no credit for the recovery, but in truth it has been as much about luck as it has been about government policy.

The government has maintained fiscal discipline, up to a point. It has handled Nama and the banks well, but not perfectly. IDA Ireland and Enterprise Ireland deserve enormous credit for the work they have done in recent years, while government policy to support sectors like the tourism industry proved to be sensible and effective.

But this recovery was largely driven by foreign direct investment flooding in and creating a lot of jobs. It came about on the back of the three tail winds of low interest rates, a cheap euro to help exports and cheap oil.

Together these have been the main driving forces for change. And there are real questions about the impact they might have when they start to turn in the other direction.

Another vital factor in the turnaround has been the response of businesses themselves to the crash.

Many managers had never even seen bad times but were plunged into deep crisis. They have survived, re-built or re-engineered their businesses very effectively in recent years.

They now have the confidence and resources to invest for the future. Irish businesses have invested around €14bn in machinery and equipment in the last 24 months if all airplane investment and IP is excluded.

This is all good news but we also have to see it in context. The housing crisis is far from sorted. Rents and house prices are both a real and connected problem but the lack of activity to quell exorbitant rents in particular will come back to haunt us.

There is no doubt the economy enters 2018 in the strongest position for many years. The rising tide is lifting many if not all boats and you can feel that.

But if outside forces brought much of this positive change, they can take it away.

There are genuine reasons to be upbeat about our short to medium economic fortunes, but future governments will be tested on whether they have really learned the lessons of the past.

Belfast Telegraph

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