JIM POWER: The economy is powering. What could possibly go wrong?

Last week, the CSO produced its first estimate of growth in the Irish economy in 2017, writes Jim Power.

This will be subject to considerable revision over the coming months as further data become available, but it does give us a fairly accurate representation of what went on in the Irish economy last year.

In general, it was a good news story.

The size of the Irish economic cake, as measured by GDP expanded by 7.8% but of course, we all know at this stage that Irish GDP numbers have to be treated with a strong degree of caution, given the various activities of some of the larger multinational companies which support a lot of direct and indirect employment in the economy.

As a result of these distortions, the CSO attempts to get a truer picture of what was really happening on the ground by stripping out some of the more nebulous activities of the multinationals.

Hence, “modified domestic demand” expanded by 3.9%. This growth number appears like a much more realistic and a believable snapshot of what went on in the economy last year. 

While it does present a more sober assessment, nevertheless it still represents a pretty decent level of economic activity that stacks up with most of what we already know about what went on in the economy last year.

Looking ahead to 2018, we can pretty confidently expect more of the same.

As we approach the end of the first quarter, it is clear the momentum in the economy is still quite strong and quite broadly based. What could possibly go wrong?

Last week, the CSO also produced a publication, Ireland — Facts & Figures 2017, which contains a lot of very interesting facts and figures, many of which present a clear picture of the obvious vulnerabilities in the economy.

For example, the top 50 largest enterprises in the business economy by gross value added (GVA) accounted for 36.4% of total turnover, 54.6% of total GVA and 59.5% of gross operating surplus in the economy.

However, these top 50 enterprises accounted for just 6.4% of total persons employed in the economy.

Separately, research from the Revenue Commissioners recently showed that 37% of total corporate tax receipts are paid by the 10 largest companies operating in the economy.

The bottom line is that Ireland is incredibly dependent on a small number of very large companies, and this dependence obviously creates a vulnerability in the event of something going wrong for those companies themselves or for their continued presence in the country. 

The recent unhealthy international focus on our corporation tax activities does appear somewhat ominous in the longer term.

Data on the household budget show the trend in various categories of household spending over time and some really interesting trends emerge.

For example, the proportion of household spending on food has declined from 27.7% in 1980 to 14.7% in 2016; the proportion spent on alcoholic drink and tobacco declined from 7.2% to 3.3% over the same period; and the proportion spent on clothing and footwear declined from 8.9% to 4%.

These trends largely reflect the price compression that has characterised food and clothing sectors over recent years.

On the other hand, the proportion spent on housing increased from 7.2% to 19.6%.

This highlights the fact that rising house prices and rents are soaking up more and more of household incomes, and of course, this spending is concentrated in the age segment of the population between 30 and 50 years of age, which is also the age segment when the financial pressures exerted by children are also most intense.

On the plus side, this is also the age segment where incomes tend to be at their highest for people engaged in paid employment.

The data does show, however, that housing has become the biggest and most worrying economic and social issue of our time.

We really need to get our act together on this issue, or it will do serious damage to the competitiveness of the economy and even more serious social issues.


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