It’s unfashionable to say it but the economy may get a lot better
Opinion: Irish exporters to benefit from falls in oil prices
The fall in oil prices could represent the equivalent of a trillion-dollar tax cut for the global economy. Photograph: Yves Herman/Reuters
As recently as August, barely four months ago, it was possible to describe Ireland’s economic recovery as “tentative”. Two pieces by this columnist – in August – suggesting that the recovery was for real were, for the most part, derided.
Typical were the tweets from an academic economist at the London School of Economics who accused me of Bertie Ahern-style boosterism (younger readers may not recall his diagnosis that the boom was getting boomier).
I mention this not to claim victory (forecasting really isn’t my thing) but to observe just how many people seem to have invested themselves in the idea that we are in some kind of permanent slump.
Optimism, notwithstanding a run of very good Irish data, is in very short supply.
For example, if we had just witnessed a 40 per cent jump in oil prices the doom merchants would be falling over themselves to imagine the scale and duration of the next recession. The actual 40 per cent fall in oil prices has led to a focus on the likelihood of oil companies going bust and a Russian recession.
Massive tax cutThe global economic consequences of what amounts to a massive tax cut for oil consumers are at times mentioned only in passing and often begrudgingly.
But it is possible to find some estimates of what kind of global stimulus we are looking at: it all depends on how low oil prices eventually go, and for how long. It could mean an annual gift of $1,100 to the average US motorist or, according to one estimate at least, a “trillion dollar tax cut for the global economy”.
In the US at least two petrol stations in Oklahoma have moved to offer fuel at $1.99 a gallon. For reference, we pay around three and a half times this. If sustained, that US petrol price means that costs will have essentially halved from their most recent peak. This really is a big stimulus. This comes at a time when the US has posted its best six-month growth rate in over a decade and the best performance of the jobs market since the 1990s.
We need to give thanks, daily, for our links to the US and UK economies: that’s what matters to us. Mario Draghi’s quantitative teasing is a sideshow by comparison.
The oil price has significance beyond its resemblance to a tax cut: the ECB and the Federal Reserve have signalled opposing interpretations of what it means for policy.
For Draghi it is another excuse to ease further, if the Germans ever let him: he chooses to focus on another probable downward lurch in inflation.
For the Fed falling oil prices are something to be ignored or even a reason to accelerate rate hikes given the stimulus to growth. This helps explain why the dollar is moving up against the euro.
Our small open economy, so exposed to exchange rates, is helped by radically different central bank responses to lower oil prices.
Leaves them coldMost people who run real businesses appreciate the futility of economic forecasting. Arguing over whether we will see growth of 2 per cent or 3 per cent rightly leaves them cold. But we do need a sense of where things are likely to go, if only in a very general way.
But today we observe the US and UK economies (and plenty of others, even European ones) in reasonably robust shape receiving a fairly hefty stimulus from the oil price fall.
Our exporters will benefit in two ways: expanding overseas demand and better pricing via the exchange rate.
All of this could lead to a very unfashionable conclusion: things are going to get better, maybe even surprisingly so.
The idea that things might get better will appal those who are politically committed to misery.
George Orwell famously sneered at the “shallow self-righteousness of the left wing intelligentsia”. Self-righteous misery will be seriously punctured by a pleasant economic surprise.
For entertainment during the party season, express optimism in front of any member of our rapidly expanding, self-regarding political factions emotionally invested in a depressing future.