Year of recession - 1986: Every recession is different, but none are pleasant

ONE definition of a growth recession is two consecutive quarters of negative economic activity.

Based on the economic evidence in 2008 it would appear growth has more than likely contracted in the first half of 2008. The ESRI contention that we will experience our first recession since 1986 looks very believable. In the first four months of the year the volume of retail sales was 0.8% lower than the same period in 2007, unemployment increased by 47,746 in the year to May, tax revenues are falling sharply, and the housing market is still falling precipitously. This is the key contributor to the contraction in growth, but it is being accentuated by the global credit crisis.

It is important to keep this forecast in perspective however. If GNP does decline modestly in 2008 as the ESRI is suggesting, it would follow 15 years of uninterrupted and strong economic expansion. Back in 1986, the contraction in economic activity followed a period of economic stagnation and did not follow a period of boom. This would mark a recession in 2008 as quite different than in 1986.

The unemployment rate in 1986 exceeded 16% of the labour force, and employment in the economy stood at just under 1.1 million. In 2008, the unemployment rate, albeit rising, stands at just 5.4% of the labour force in May and total employment in the economy in the first quarter of the year was more than 2.1 million.

In 1986, the exchequer deficit was equivalent to 11.4% of GNP and the level of Government debt outstanding was equivalent to 115% of GNP. This year the borrowing requirement is likely to be less than 3% and Government debt outstanding will be under 30%.

Ireland in 1986 was a very depressed place, with high unemployment, heavy emigration, penal levels of taxation, very little wealth. Ireland today is a country with low unemployment, relatively low taxation levels, inward migration and considerable wealth. After 15 years of strong growth there is a much greater level of personal wealth in the country and entrepreneurial endeavour is more obvious and more appreciated in most quarters. The country is much more self-confident and there is a much greater can-do attitude.

These factors should stand the economy in good stead during difficult economic times. However, the economy is slowing rapidly and it appears the situation will get worse before it gets better. Unemployment will rise and the job losses are likely to percolate into sectors other than construction, leading to some forced emigration, particularly among the non-Irish who have entered the country in recent years. Tax revenues will continue to weaken and we are likely to be treated to stringent cutbacks. It is encouraging the Minister for Finance is aware of and not afraid to discuss in public the problems facing the economy.

Every recession is tough and has its own unique characteristics.

Personal levels of indebtedness are very high, unlike the 1980s when most debt was held by the public sector. The next couple of years do not promise to be full of fun.