Economic slump hits Ireland Inc
MONDAY’s announcement from insurance company Hibernian that it is to ship 580 jobs to India hammered home the doom-and-gloom report from the ESRI. The report said unemployment would rise to 7.1% in 2009 and analysts are looking at two emerging factors likely to affect this.
One aspect is companies like Hibernian eyeing the cost reductions of moving large numbers of jobs to cheaper labour markets.
The second is the leakage of individual workers from building sites which has been at the vortex of the economic downturn. With the dramatic reduction in the demand for houses, 270,000 people employed in construction face an uncertain future.
For the past decade the shortage of labour in this area saw an influx of workers from eastern Europe. With opportunities drying up, many are leaving for home. This has boosted emigration, and is likely to continue with improving economic conditions in Poland creating new jobs for returning emigrants.
However, it is now not just eastern European workers that may be affected, because 25% of men in this country are working in the industry. The scarcity of work for this group which causes greatest concern.
In an interview last week, Clare hurling captain Brian O’Connell revealed the county’s squad was an unfortunate example of how the change is being felt.
“Five or six of the lads are affected — myself, Phillip Brennan, Tommy Holland are on the building side (architects/engineers all) while Gerry Lynch and Gillie (Niall Gilligan) are involved in auctioneering. We’ve all seen the downturn, and other lads are probably affected as well. There’s still some work out there, but it’s more difficult to come across,” he said.
Mr O’Connell is eyeing a temporary move to Australia if conditions do not improve, while others are looking at the pre-Olympics boom in London.
At a corporate level the transfer of work to low-cost economies has hit, but up-to-now this has primarily been focused on the ailing manufacturing companies. The Government’s focus has instead been on improving the education of the workforce to attract higher quality jobs. And, to this end, there is still a skills shortage in many high-paid sectors.
In addition, when multi-nationals have announced global cutbacks, Ireland has been spared the worst. In a large part this has to do with the low rate of corporation tax and access Ireland offers to Europe.
However, when high-profile companies such as Hibernian announce moves to India it introduces a further layer of doubt that the country will not be able to ride out the exodus to developing countries.
IN OUTLINING the ESRI report, its co-author Dr Alan Barrett said the economic downturn was manageable but public service pay would have to be reined in.
He suggested some government borrowing was acceptable to keep the economy moving but the most obvious saving was to be made in the new social partnership negotiations.
Mr Barrett said 30,000 public service workers, who enjoy the most secure employment status, should not expect pay rises. The latest round of national pay talks began in April and unions have been seeking pay rises to match expected inflation of 10% over the next two years.
However, the last benchmarking report gave little cause for celebration among civil servants after it recommended limited pay rises because of the pre-existence of generous pension packages.
General secretary of the Civil Public and Services Union, Blair Horan, said if its members are to be expected to shoulder further cutbacks, policy-makers are mistaken. “If people think public service workers are going to bear the brunt of a downturn in the building industry they can forget about it.”
Mr Horan said in his opinion the economy is still strong in every area, outside of the construction sector. However, he said the correction in construction cannot fall on one section of the workforce alone.
“It is important to realise that this is entirely brought about by the housing market and Government policy where there was an over-reliance on a single sector. There is no evidence other sectors will suffer in the same way and it should not be the case that the living standards of public sector workers are the fall guy for this policy,” he said.
IN INTRODUCING the prospect of more people leaving Ireland than would be arriving, the ESRI awoke a black dog in the Irish psyche.
From the Great Famine to the payroll of Robert McAlpine, the word emigration has equated to a family death in a uniquely Irish phenomenon of mass employment-based migration.
But Piaras Mac Einrí, of University College Cork’s centre for migration studies, said while the word is the same today it should be understood in a different context.
He said people now move around more and, in a European context, workers can choose to migrate for short periods without any intention to remain abroad.
“There are always ebbs and flows, and even at times of net immigration there will be people leaving the country.
“I think the big difference now is that many young Irish people are leaving to work in Australia or where-ever and they are not seeing it as a permanent move, whereas before you would have had the American-wakes and we would have almost been raising people for export,” he said.
The ESRI emigration estimates also need to be understood in the context of a trend which has been increasing steadily since the millennium. The recent census revealed between 2002 and 2007 there was a 65% increase in the number of workers leaving for overseas.
It also showed before the latest talk of recession began, emigration was the highest since 1992 and just 200 short of the highest five-year average in the 20th century.
However, while the return of net-emigration may not see hoards of indigenous Irish workers queuing at airports, it will cause the economy to shrink.
In particular, the recent arrival of eastern Europeans added a large consumer base to the Irish market. It has also buoyed up the rental sector of the housing market.
However, Mr Mac Einrí said while the rest of the economy may not haemorrhage jobs, the country’s reliance on the building industry created a situation where the spectre of emigration could take root.
“In the construction industry there was a problem because something like 25% of males were employed in this sector and compared to every other country we were too reliant on this. It was just a question of whether it would be a soft or a hard landing and we are learning the answer to that,” he said.
PUBLIC finances are predicted to fall by 3.9% in 2009 and we will be short €3.3 billion by the end of the year.
Almost exclusively this can be attributed to the fall-off in the property sector and the tax revenues this generated for budgets during the Celtic Tiger years.
As recently as December the Government was predicting 70,000 houses would be delivered in 2008, but this is being downgraded massively for 2009.
Even in the second-hand sector the market is spooked and people are sitting on their assets.
It means stamp-duty revenues are scarce and there is constant speculation about the stage at which the market will hit rock bottom.
This month the Central Statistics Office revealed the number of planning permissions for new houses have fallen by 15%. And the long-term question is how many houses can the economy sustain into the future.
Tom Parlon, of the Construction Industry Federation, believes 50,000 new houses a year is a realistic target. And this month AIB predicted the drop in the economy will level again in 2010.
But the scale of the revival also depends on how the value of the existing housing stock holds up because many developers bought land expecting to recoup their investment with inflated prices for individual units.
If the market is flooded with houses people can no longer afford, the price may keep dropping for the foreseeable future. Figures from Fitch Ratings suggest this is likely to get more pronounced, with up to 25% to be stripped from the price of houses by February 2009, compared with two years ago.
Particularly since the introduction of 100% mortgages in 2005, some homeowners, with the least amount of savings, are in a situation of negative equity. This has been made worse because globally banks do not trust each other’s viability and interest rates have been rising.
Because the slightest rate increases from the European Central Bank or individual lenders can significantly add to the cost of mortgages, it is not known how much struggling homeowners can bear.
This will be come into even sharper focus if jobs in two-income households are lost. The saving grace may yet be the amount of people still in rented accommodation who could enter the market.
In 2007, income on rented properties was steady even though the amount of properties available almost doubled between October and December.
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