Why the Central Bank’s economic forecast has left my stomach in knots

WHY would the news of an imminent Central Bank forecast fill a reasonably sane man with foreboding?

Why would I immediately start to wonder — George Lee, why did you abandon your post? Why aren’t you here to explain to us immediately what all this means? And why would I start to shake with anticipation at the thought of the slew of other forecasters, commentators and economists, who seem to prowl the corridors of Montrose and TV3 waiting for their chance to terrify the nation? Why would I struggle to sleep with the images of David and Constantin swirling around in my head? There was a time in my life when I was engaged in the daily struggle of politics. I was completely obsessed with the ups and downs of it. So whenever I heard that a political opinion poll was imminent, I’d get a knot in my stomach.

Sometimes I might pick up the vibe that there was going to be a poll three days hence. And I wouldn’t be able to rest until I’d found out what it had to say. Who was up, who was down? How was my lot doing? What were the personality ratings, the leadership approval figures – like? Once I knew — whether it was good or bad – the knot would settle (sometimes into a dull ache), and I’d begin to figure out what it really meant.

And you know, sometimes those opinion polls meant nothing. It would be different if an election was in the offing. Apart from anything else, the polls would be coming thick and fast then, and it would be very easy to discern trends. But opinion polls usually reflect trends, they don’t make them. A bad opinion poll, although it can have disastrous effects on the internal morale of a political party, doesn’t whip the destiny of the party out of its own hands. Unless, of course, the party allows it to.

In that sense (although it is sometimes argued to the contrary) an opinion poll isn’t a self-fulfilling prophecy. They are devoured in the artificial world inhabited by those of us who could be classed as political anoraks, and they are guaranteed to make headlines in the equally artificial world of the media.

Economic forecasts are different. They don’t just predict the future, they can shape it, especially when they are from an authoritative source. And they affect the real world. Now, there is almost nothing duller in the real world than a Central Bank Quarterly Bulletin. Watching grass grow is a lot more entertaining. Endless pages of text and tables, design and layout aimed at making your eyes glaze over, and all in the same dry language. If it were read aloud it would sound like that radio ad where the guy starts off his power point presentation by reading out the dictionary definition of management.

Consider this, for example, the second paragraph of the entire thing. If you find yourself nodding off before you get to the end (and remember, there’s dozens of paragraphs like this in the bulletin) try reading it aloud to your loved ones. After you’ve read it, I’ll tell you why it’s important.

“For this year, GDP growth is projected to moderate to about 0.5% in 2012 with GNP declining by about 0.7%. This represents a significant downward revision on the previous projections for this year and reflects, in the main, the weaker short-term prospects for external demand. This is expected to be followed by a pick-up in growth in 2013, to around 2.1% in GDP terms and 1.0% in GNP terms, based on a recovery in external demand from the second half of this year, alongside a gradual stabilisation in the domestic economy. Uncertainty remains high, however, and a wide range of outcomes is possible, including one in which the domestic economy is held back by weaker external demand for a longer than expected time.”

The reason this paragraph matters — and the reason it puts a different kind of knot in my stomach — is because of one sentence from the beginning of the last Quarterly Bulletin of the Central Bank, which was published on Oct 14 last year. That sentence read: “Next year, the expansion in GDP is projected to be 1.8%, while GNP will likely grow by 0.7%. The latter figures represent more modest rates of expansion than previously anticipated.”

In just three months, Ireland’s official forecasters are saying that instead of starting to grow this year, our domestic economy is going to decline. And the change is far more significant than the dry language suggests. Apart from anything else, it means that hope has to be put on hold.

There is, of course, the possibility that one or both of these forecasts is wrong. Actually, in terms of degree, that’s a certainty. The Central Bank has never got the percentages exactly right.

But look, they’re never going to say “we were too optimistic/pessimistic” or “we made a bags of our figures”. What they are telling us is that the economy has gone into reverse gear yet again, and that at least for one more year, there is little good to look forward to in terms of economic growth. There’s nothing too surprising there, maybe, but that doesn’t make it less devastating. And I’ll tell you why.

First, it means that even more people are going to be encouraged to pack up everything they have — not just their belongings, but their skills, their education, and their experience — and go. And we really need them here. There will come a point — and it has happened before in Ireland — where emigration creates a kid of tipping point. So many people leave that it fatally undermines the prospects of recovery for a decade.

And secondly, we have pretty well squeezed the last drop of juice out of public spending. Public spending can’t recover until the economy does, and it can’t grow until about two years after the economy starts to grow. And whether we’re prepared to admit it or not, the squeeze on public spending is starting to put an awful lot of things at risk.

Public safety, public health, public education, public wellbeing — these things, which go to make up the quality of public life — can survive some tightening of public spending. But it’s going on for three years now. Another two or three years will lead to a perhaps irretrievable breakdown in the social fabric of our country.

So I’m waiting and watching for the next set of forecasts of economic growth in Ireland. I don’t care, in some ways, if the economy grows by less than a per cent or by more than three or four. We’re going in the wrong direction now, and I seriously hope that the Government we elected a short while ago is focused on this as its first priority.

Of course, if they are, they might have to figure out how you grow an economy while imposing austerity. The last time that happened, it was called the miracle of the loaves and fishes. We may need another miracle of that sort soon.