We are almost five months into 2017 and all the indications are the economy continues to strengthen.
After last year’s better- than-expected growth out-turn, over 5% in real terms, most analysts are revising up their GDP forecasts for this year.
Some of course would argue that GDP is no longer a reliable indicator of the economy’s wellbeing, but other key statistics, particularly on jobs are positive.
The labour market is still improving, with the most recent official figures from the CSO showing all 14 economic sectors posted gains in employment in the final quarter of 2016.
What is encouraging too is that the recovery is now spreading beyond Dublin. The biggest fall in the Live Register in May was in the mid-east region followed by the south-west region. At this juncture, the unemployment rate should come down to close on 6%, having been 15.1% at the height of the financial crisis.
Many people are still in negative equity following the property market crash, but house prices are recovering, though nationally they are still roughly a third off their peak.
However, there is a housing crisis. A lack of supply of houses has pushed up the cost of a property and until this issue is addressed, prices will likely remain elevated.
The easing of mortgage lending restrictions imposed by the Central Bank combined with the tax-incentive scheme for first-time buyers announced in the October Budget will only add to upward pressure on prices until new supply comes on the market.
A recent suggestion was that the Government, in an attempt to get more supply out in the market, should reduce capital gains tax on the quarter of a million houses currently vacant, from 33% to 10% for a one-year basis. In my view, we need to start treating houses solely as a place to live and not as an investment asset, and discourage investors through punitive tax charges or whatever means.
However, we have been here before and one can’t help feeling like Bill Murray in Groundhog Day. The cranes are back in force across the skyline as commercial property development increases and hotel occupancy is at elevated levels too, only adding to the recovery but leaving one with the impression of déjà vu. And we all know how that ended.
It is therefore imperative that policymakers and the financial regulator are alive to the dangers of a repeat and don’t make the same mistakes again. Matters of course are complicated too by the whole Brexit issue and how things will play out.
In the meantime, Ireland should continue to make hay while the sun shines. And once again in 2017, we should be close to being the strongest performer in the EU as regards increased economic output. Most of the risks to the economic outlook in the short-term remain external, and there is very little we can do about that.
Closer to home, the main worry is that we become uncompetitive by paying ourselves more than we can afford. Extra pay for public servants will mean less money being spent on vital services. The last thing the economy needs now against the uncertain Brexit backdrop is to become uncompetitive again through higher wage costs.
New figures from the Central Bank showed household debt as a proportion of disposable income (141%) has fallen more than any other EU country in recent years. Despite this, Irish households remain the fourth most indebted in the EU, suggesting we are not best positioned to cope with another shock. Government debt remains elevated, raising questions over being able to sustain a higher pay and pensions bill in the public service without doing untold damage to the economy as a whole.
Ireland has come a long way in the past few years, recovering more quickly than most experts had envisaged, and the short-term prognosis remains positive.
However we need to be careful, because trying to run before we can walk may see us relapsing again and back to square one.
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