Jim Power: Relatively good year for the Irish economy, despite everything

Yet, it is important to recognise the dual nature of the economy that statistics do not really reflect

For people working in non-essential retail, the broad hospitality sector, airlines, arts and entertainment, and personal services, 2021 was very challenging.

This time last year we were looking back on a year that had been incredibly strange, and we looked forward to the coming year as one that would hopefully restore some semblance of normality to our lives. The delivery of various vaccines ahead of schedule gave rise to a high level of optimism. Alas, Omicron has re-written the script.

We began 2021 with the imposition of significant restrictions in Ireland that lasted for almost the first half of the year. 

After a very rocky start, the Irish vaccine rollout improved to allow a gradual lifting of restrictions and the joys of foreign travel became part of life’s experience once again.

Personally, I found nothing harder than not being able to get off the island, and once possible, I certainly availed of the opportunity. 

By October, there was a sense that normality was almost restored. In the event, these hopes proved ill-founded and as we moved into November the spectre of Omicron appeared. 

It is certainly possible to conclude that it turned out to be another rather strange year, where a sense of normality was not always obvious.

From an economic perspective, 2021 was a pretty decent year for the Irish economy. 

GDP powered ahead in the first nine months, with exports up and consumer spending rebounding. 

GDP is, of course, not a good measure of what is happening in the Irish economy due to the activities of multinationals, particularly in relation to so-called non-tangible assets such as intellectual property and aircraft leasing activities. 

We find that a more realistic measure of what is really happening on the ground is modified domestic demand, which increased by almost 5%. 

That is a healthy growth number which, nonetheless, showed the economy has yet to fully recover from the pandemic. 

The Government continued to provide considerable Covid-related support to workers and businesses worst affected by the pandemic. 

The massive increase in spending was offset by incredible buoyancy in income tax, Vat, and corporation tax receipts. 

Another notable feature in the Irish economy was a sharp improvement in the labour market in terms of both employment and unemployment. 

The unemployment rate in November fell to 5.2% and labour scarcity has become a big issue for retail, hospitality, construction, and horticulture. 

By some accounts, the scarcities are attributed to the disincentive effects of the pandemic unemployment payments, skills mismatches, health concerns, and additional caring responsibilities.

Despite everything, 2021 has turned out to be a relatively good year but it is important to recognise the dual nature of the economy that the statistics do not really reflect. 

It was a good year for people working for many multinationals, professional services, financial services, the public sector, or essential retail. 

For people working in non-essential retail, the broad hospitality sector, airlines, arts and entertainment, and various personal services, it was again very challenging. 

Unfortunately, it does not look like getting better anytime soon for people working in the worst afflicted sectors. 

Jim Power

Other notable domestic economic events in 2021 related to the housing market and inflation.

Irish house prices continued to surge as strong demand continued to come up against limited supply. 

Despite considerable huffing and puffing, successive governments have been failing abysmally to get a grip on what is the biggest economic and social challenge facing the country. 

The behaviour of the objectors to planning proposals has not helped as Ireland needs to build more houses and needs to build higher in urban areas.

Inflation became a big issue both internationally and in Ireland in the second half of 2021. 

Inflation in Ireland hit 5.3% in November, which was the highest since June 2001; the US hit a 40-year high of 6.2%; the eurozone hit 4.9%, which is the highest since the euro was introduced; and Germany hit 6%, which is the highest since the deutschemark was abandoned. 

Strong Covid-related repressed demand, elevated oil and natural gas prices, and a whole array of shipping and other supply chain difficulties are contributing to inflation and the process is not likely to have run its course just yet. 

The legacy of Covid is alive and well.

As we move into 2022, unfortunately, Omicron is dominating the agenda and restrictions are being implemented in many countries. 

As has been the case since March 2020, epidemiology rather than economic fundamentals will continue to exert significant influence over economic activity.

Housing, climate change, corporation tax developments, the ongoing redrawing of the political complexion of the country, as well as Brexit, will also dominate 2022.   

Abroad, it promises to be a most interesting year. 

The bedding in to power of Olaf Scholz as German leader and the end of the Angela Merkel era; the French presidential election in April; the mid-term elections in the US in November; and the growing antagonism between China and the US and others will be certain to be headline news.        

There will also be the Russian-Ukrainian border; climate change; the growing construction-related debt crisis in China; Brexit; and the reaction of central banks to the inflationary threat to draw attention. 

Of course, the one thing that we should all learn from the futile act of forecasting is the need to always expect the unexpected. Here’s hoping for a happy Christmas and a return to some normality in 2022.