Alan Healy: When the economic numbers are this good, start asking questions
It was a good week for Irish economic data, but a complicated one for the Irish economy.
In this country, we get a strange level of reassurance that Irish economic data provides.
Each week we are buried in numbers, which generally tell a positive story about the state of affairs. Every morning brings a fresh data release, a new index, another percentage point of growth or moderation or expansion. And somewhere in the avalanche of figures, the actual state of the Irish economy becomes harder to see.
Ask someone trying to buy a home this week or filling their van with diesel how the economy is going, and you will get a blunt answer. But the data releases that each day paint a much brighter and sunnier picture.
That gap between headline data and the real experience is widening.
The housing numbers this week showed national house prices rose 5.5% annually to July. Prices are still rising but at their lowest level in almost three years. But the same data release shows that apartment prices are up 7.5% nationally, and 9.2% outside Dublin. It means that apartments, the very property type that Ireland most urgently needs to build, are becoming unaffordable at nearly twice the rate of houses.
The same week also saw a report showing the number of new housing commencements has increased. However, a separate report shows. The average time to complete a new home in Ireland has doubled over the past decade. A house that took roughly 12 months from commencement to completion in 2015 now takes closer to 24.
The growing number of homes commencing construction provides a comfort blanket and is evidence of action, but is again disconnected from the reality of those currently seeking a home and paying more than €2,000 a month in rent.
Another data point this week shows the export of goods from Ireland hit €18.9bn in July, a 12.5% increase on the same month last year. Computer and semiconductor exports more than doubled, up 188% in a single month. One explanation is not that Ireland suddenly became dramatically more productive. It is that companies front-ran US tariffs, accelerating shipments through Irish facilities ahead of further trade disruption. If correct, July's figure is a distortion, not a trend.
In 2015, Ireland infamously recorded GDP growth of 26.3%. The figure made headlines around the world. Not because anyone believed it, but because it was so obviously disconnected from any recognisable reality that it forced a reckoning with how Ireland's national accounts actually work. The reason for the GDP rise was the relocation of intellectual property assets by multinational corporations into Ireland, combined with the mechanics of aircraft leasing.
Nobel laureate Paul Krugman coined the term "leprechaun economics." The name has since stuck and is repeated on a regular basis.
An economy that is genuinely strong is different from an economy that is producing strong numbers. Ireland has been genuinely good at the latter. While the numbers are real, the framing around them requires context that is not needed in other economies. Surging exports often mask frontloading by multinationals; rising growth is often concentrated in specific sectors, and a moderation in inflation often masks consumer price rises elsewhere.
All of this is not to suggest the Irish economy is in crisis. It is not. There is a genuine resilience being shown by Irish businesses in a difficult global economy. Employment remains high, and the state's coffers remain in surplus.
Ireland has an unusually large divergence between aggregate economic performance and the indicators that matter for household living standards.
The European Central Bank raised rates last week and will do so again before the end of the year. Irish lenders have largely insulated homeowners, house hunters and businesses from these increases, but that can only happen for so long. Fuel prices at the pumps are increasing again, and the rate rises will work their way through to mortgage holders and businesses. When they do, the question of whether our underlying economy is as strong as the numbers suggest will no longer be a question to be pondered. It will become real, very quickly.
The problem isn't that Ireland's economic numbers are wrong. It is that too many of them describe an economy that large swathes of the population do not recognise. Recent Irish history suggests that when the numbers become detached from lived reality, we should pay closer attention, not less.
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