Short-term back-slapping on recovery ignores reality

As the ingredients of an economic recovery continue to take hold in Ireland, the risk of complacency and arrogance looms large.

These attributes plagued Ireland as the Celtic Tiger roamed the land.

Ensuring such attitudes do not resurface is almost as important as managing the recovery itself.

It is odd to be writing about ways of maintaining some balance while economic momentum builds.

It is a short six years since all of us were in the depths of depression as waves of awful economic data crashed over us.

Aside from an imploding banking system, we had to contend with a collapsed and frozen property market.

Weak global economics compounded our problems given a dependence on international trade in goods and services. On top of that, emigration was in full swing, whipping out of our society young, educated citizens.

These conditions seem almost like a bad but distant dream in the middle of 2015. Exuberance abounds all round. Aside from headline economic data showing expansion, there is evidence of jobs growth, a recovery of residential and commercial property prices, and rising employment.

Public pay cuts have bottomed out and increases, particularly for lower- income workers, are likely as an election year looms. Moreover, confidence surveys point to increased levels of investment which, in turn, should sustain the development of the economy in a positive direction.

Against this backdrop, it would be easy to conclude we are a nation of geniuses at tackling economic crises. While major sacrifices were undoubtedly made in the domestic arena, it would be remiss to ignore the assistance provided by a number of sources.

The ECB, for example, through its quantitative easing programme, is showering monetary stimulus on Ireland through liquidity and ultra-low interest rates. This is like a river of money running through every crevice of the economy.

Companies are getting lower interest rates, the State is borrowing at record low interest rates and personal borrowers are experiencing a lower cost of money too.

A secondary effect of the ECB action is to depress the euro, a currency move that has uniquely helpful outcomes for Ireland. Against sterling and the dollar, in particular, the low euro is making Ireland more competitive at a time when imported inflation is subdued.

Another helpful hand to the economy is the ongoing growth in the UK and US. These are powerhouses for Ireland, given their deep trade connections, so positive economic momentum in these huge economies helps stimulate imports from Ireland and investment.

The latter point is especially pronounced among US multinational companies that appear to be making daily job announcements in this country.

None of these external stimulants should be taken for granted. All of them will ebb and flow over coming years. Central banks, on both sides of the Atlantic, will eventually curb quantitative easing and lift interest rates.

Economic growth in the UK and US will inevitably slow down. Exchange rates are structurally volatile and will swing around to levels unhelpful to Irish commerce.

Thinking through those future scenarios is an essential factor when policymakers and politicians plot the next moves in the Irish economy.

Staying competitive with labour and operating costs, driving the national debt to sustainable levels and keeping in check our enthusiasm about the nascent recovery are essential if a repeat of past excesses is to be avoided.

Getting such a thought process into the political system is extremely difficult in a parliamentary system anchored around proportional representation.

The temptation in government to accelerate decisions that support short-term popularity is large while opposition parties will inevitably promise actions that tap the momentum in Exchequer finances. It will be another test of our democracy and political leadership over the next year.

Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.