Real meat in the economy, but plenty of fat too
By Jim Power
One of the features of Ireland’s economic recovery, from the deep morass that it found itself in a few short years ago, is that almost all economic forecasters have under-estimated the magnitude of the recovery and are constantly being forced to upgrade forecasts.
Earlier this week, the Department of Finance published the first draft of the Stability Programme Update (SPU), which will have to be submitted to the European Commission and the European Council at the end of April.
This requirement is one of the legacies of the troika bailout and shows the extent to which external influences are increasingly driving Irish economic policy at the macro level.
As long as the macro indicators are looking OK, the external bodies will be happy enough and will not be overly concerned about the micro detail.
The SPU is an update of economic and fiscal forecasts for the period 2018 to 2021. Not surprisingly, the medium-term forecasts have been revised upwards and are pretty upbeat.
Real GDP is projected to expand by 5.6% this year and by 4% next year. The underlying picture that the department
of Finance is painting is a pretty upbeat one, which thankfully looks quite realistic.
Employment is expected to expand by 2.7% this year and employment levels are shortly set to reach the
highest level ever recorded in this country.
The critics of Government, and the perennial moaners, will inevitably choose to ignore this very important reality and instead just focus on the obvious deficiencies in the country, particularly homelessness and health.
In my view, the most important thing government has to do is to create an environment where entrepreneurs are prepared to invest and take risks, and where employers are willing and able to create jobs.
Meaningful job creation is vital, and it is amazing just how many social and financial difficulties and issues can be remedied by the ability to find meaningful employment. The labour market is the most visible and the most important
positive legacy of those who have run the country since the crash in 2008.
The size of the economic cake is not the be all and end all, but it is important to grow the size of the cake, otherwise the ability to tackle the obvious problems will be seriously compromised.
The first priority for policymakers should be to grow the size of the cake, and the second priority should be to slice and allocate it in the most efficient and equitable manner possible.
It has to be hoped that the growth outlook contained in the SPU actually does materialise, thereby generating the resources needed to address the various problems facing us as a society.
The reality is that the Government debt to GNI* ratio — which is a modified, but more real, measure of the size of the economy, that strips out the multinational accounting distortions — is projected at a still very high level of 97% this year.
As an aside, Bord Bia and the minister for agriculture deserve strong plaudits for the beef deal with China announced this week. It is unlikely to be a game-changer, but will offer some respite to the very exposed beef sector.
