Ukraine crisis exposes our energy dependency
Last week the Quarterly National Household Survey (QNHS) showed that at the end of December there were almost 61,000 extra people working compared to a year earlier.
The number of people signing on the live register fell below 400,000 in February for the first time in five years and the unemployment rate has fallen to 11.9%, which is just below the eurozone average.
While there are still way too many people out of work, the labour market is certainly starting to function better. Anecdotally, I know of a number of relatively skilled vacancies that are proving difficult to fill in different sectors.
This is reassuring and is consistent with most evidence out there at the moment. The retail sector is still probably the most challenged part of the economy, as the personal discretionary spend is still under some pressure. The full-year property tax payment process is not helping, but Vodafone shareholders are currently receiving something akin to a bonanza, which should help in the aggregate.
The Irish story is obviously being helped in a significant way by the better international backdrop.
This week we got evidence that the eurozone economy expanded by 0.3% during the final quarter of last year, which is stronger than expected and does officially signal the end of technical recession.
However, GDP in the final quarter of last year was just 0.5%% on a year earlier. However, it is moving in the right direction.
The UK economy is continuing to surprise on the upside. GDP expanded by a very impressive 0.7% during the final quarter, and by 2.7% on an annual basis.
Outside of the euro, the UK economy has done pretty well since 1999, notwithstanding the same issues as everybody else in 2008. It has considerably more interest rate and exchange rate flexibility than those countries within the euro straitjacket, plus it has a generally more flexible economic model. From the perspective of indigenous Irish exports, particularly in the vital agri-food sector, the strength of the British economy is very important.
In the world of economics and politics, it is true to say that one should always expect the unexpected.
The escalation of the situation in the Ukraine was always bound to happen, given the ethnic composition of the country since the collapse of the Soviet Union. It is still very uncertain as to how this situation will rectify itself.
The risk is that an escalation in the region could do serious economic damage to the European economy. From a trade perspective the eurozone relationship with either Russia or the Ukraine is not that significant. Less than 5% of eurozone exports go to Russia and less than 1% to the Ukraine. The imposition of sanctions on Russia would be more problematical in terms of gas supply, oil and energy prices in general.
Energy prices would obviously rise if relations between the EU and Russia were to deteriorate in any significant way, but it will prove very difficult to get EU agreement on a policy approach, which is not exactly a unique problem for the EU. For example, Finland has a very significant trade exposure to the country and will obviously be loathe to do anything that might undermine that trade.
The EU cannot afford to escalate the situation, largely due to the energy issue. Perhaps in the whole debate on energy in Ireland and the rest of the EU, the dependence on Russian gas should be the key driver in developing alternative sources of energy, including wind.
As an aside, is it just me or is there a distinct lack of response from the ‘liberati’ to what Russia is now doing? Imagine if the US did it?
