A year in which we escaped the worst
The year just ending also saw the setting of a date for an independence referendum in Scotland. In less than two years’ time, the Scots will decide whether to leave the union of which they have been a part for more than 300 years.
If, in five years, a united states of Europe exists, Britain is outside that union and Scotland is outside the UK, 2012 will be looked back on as the year when the near-ideal world in which Ireland had existed for decades began to come to an end.
Recovery remains illusive
Of more immediate concern is an end to recessionary times. But, like most of the downside risks that existed at the beginning of the year, recovery, alas, did not materialise in 2012. The Irish economy endured its third year of bumping uncomfortably along the bottom.
In the first three quarters, gross domestic product – the widest measure of economic activity – grew by just under 1 per cent on the same period in 2011.
All things considered, that was a creditable performance. But if the headline growth rate looked decent, conditions on the ground remained grim for the most part. Over the first nine months of 2012, employment continued to fall, reflecting a feeble domestic economy.
In the third quarter of the year, the number of people at work was down 23,000 on nine months earlier. That was only a little less bad than the 28,000 decline recorded over the same period between 2010 and 2011.
That said, time is a healer. Another year passing has surely brought better times closer.
The residential property market gave cause for guarded optimism. Prices appear to have bottomed out at last and foreigners showed considerably more interest than they have for many years.
Although fragilities and risks remain, there is a real possibility that 2012 will mark the end of what has been among the biggest property price crashes ever recorded globally.
While there is a good chance that the shake-out in the property market is over, the banking system has further to go before its foundations are solid, as illustrated by the extension – yet again – of the bank liability guarantee in mid-December.
While the two pillar banks in 2012 managed to issue bonds for the first time since they were rescued and banks’ dependence on Central Bank funding continued to decline, the system is very far from fixed, as still-massive central bank borrowings attest – €116 billion at last count (in November), equivalent to two-thirds of Irish GDP.
Hindering the process of recovery has been an inability of the bailed-out banks to attract more of the most important source of funding – cash deposits. Money that left the banks in 2010 has not returned.
When the entire banking system, including the International Financial Services Centre, is considered, the deposit outflow continued in 2012. Between January and September, more than €60 billion was withdrawn from all banks resident in the Republic.