What are the signs really telling us about Ireland's recovery?

With many economic indicators back above or approaching pre-crisis levels, it seems inappropriate to describe Ireland as still being in the recovery stage, writes Phillip O’ Sullivan

Not everything that counts can be counted, and not everything that can be counted counts.

The saying, which is often (but perhaps wrongly) attributed to Albert Einstein, frequently comes to mind when I see people quoting statistics that support their of view in debates around the economy.

Notwithstanding the above, one data point that I was looking forward to citing in my own reports on the Irish economy this year was the expected return of Irish GDP to pre-crisis levels.

In the event, the CSO spoiled the party by announcing at the end of July that, contrary to previous estimation, this milestone was actually already reached (without anyone noticing) in the third quarter of 2014.

Perhaps we should have guessed that this was going to happen. While individual Irish economic statistics can be (sometimes significantly) distorted by idiosyncrasies relating to the large multinational sector, which demands an element of caution when interpreting individual releases, the consistent message that we should have taken from the data was that the economy was expanding at a blistering pace.

In the event, Irish GDP soared by a remarkable 5.2% in 2014, putting Ireland second only to The Grand Duchy of Luxembourg in Europe’s growth charts. What an unlikely outcome for a country that, after all, only exited an EU-IMF bailout in December 2013.

While we are all familiar with the horrific cost of the economic crisis, the numbers behind the misery suffered by so many still make for stark reading.

In GDP terms, Ireland’s economy contracted by a tenth between the high water mark (Q4 2007) of the Celtic Tiger era and the Q3 2009 nadir. Unemployment vaulted from the 4%-5% range of the Tiger period to a peak of 15.1% by late-2011. In net terms, Ireland swung from being an ‘importer’ of people to exporting 140,000 (more than the population of Cork City) over the first five years of the crisis. Retail sales imploded by a quarter in volume terms between the start of 2008 and the start of 2010. Household net worth fell by €277bn between Q2 2007 and Q2 2012.

The public finances deteriorated sharply, with the ratio of gross general government debt to GDP increasing five-fold between 2007 and 2012.

Over the past 18 months, or so, the economic revival has been equally stark. GDP regained all of the territory lost and now stands 4% above the previous all-time high. Total employment (+3.0% y/y in Q2 2015) has increased for 11 successive quarters. Last week’s QNHS release showed unemployment rate is at a six-and-a-half year low of 9.6%. Net emigration has moderated to 11,600 from the peak of 34,400 recorded in 2012.

Consumer confidence improved to a nine year high in June, while retail sales have posted 20 successive months of growth on an annual basis. Household net worth has returned to 2008 levels. The public finances are also trending in the right direction, with the ratio of gross general government debt to GDP falling to a four year low of 104.7% in Q1 2015.

With many economic indicators back above or approaching pre-crisis levels, it seems inappropriate to describe Ireland as still being in the recovery stage. The economy looks set to grow by more than 5% this year, putting it firmly in expansion mode.

That is not to say that the rising tide has lifted all boats. Household debt and unemployment are still high.

Some politicians have pledged to ‘end the cycle of boom and bust’, but for a small open economy that seems unrealistic. Ireland will always be influenced by external developments.

As the parties prepare to set out their stalls ahead of the election, perhaps voters should consider another quote from Mr Einstein – “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning”.

Philip O’Sullivan is Chief Economist for Ireland with Investec Bank plc


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