Some encouraging signs in our economic situation at last
For the first time in several years we are now outperforming our own targets
SOME OF our newspapers have served us well during this economic crisis – notably The Irish Timesand Sunday Business Post, and also Brendan Keenan in the Irish Independent.But others, as well as some elements in our electronic media, have provided an unrelenting battery of misleading negativity that has had a very damaging impact abroad as well as at home.
Because neither the rating agencies who evaluate our debt situation, nor the actual bond buyers themselves, are equipped to do serious research into the economic condition of smaller euro zone countries like Ireland, these agencies are vulnerable to the tide of negativity that they pick up second-hand from some of our own media.
As we approach Christmas, and the start of a new – and hopefully better – year, it is, I believe, time to mention a recent stream of good news. First of all, the end-November Exchequer Returns have shown revenue running ahead of the Department of Finance’s 11-month target – as well as expenditure falling below its projected level. As a result, at this stage the budget deficit is running €1.5 billion below target.
Thus, for the first time in several years we are now outperforming our own targets.
Second, it should be pointed out that scepticism, both at home and abroad, about our economic growth prospects underrates several very positive factors in particular the fact that our economy is one of the most open in the modern world. When other developed countries’ output fell last year, ours dropped twice as fast. As and when these countries start to recover – and the timing and scale of European and US recovery are, of course, both uncertain – our recovery could equally be twice as rapid as theirs.
A good indication of our potential for growth lies in the fact that we have recently been moving quite rapidly into what looks like becoming a substantial balance of payments surplus.
Meanwhile our manufacturing output, most of it for export, has been rising steadily.
Although little commented upon, the output of the foreign multinational part of our manufacturing sector – within which the pharmaceutical sector has a dominant role – has been growing throughout the whole of the last two crisis years, and is currently about 15 per cent higher than it was two years ago.
But what is new, and particularly encouraging, is the fact that since last April the output of the indigenous sector of manufacturing has also been increasing, at a rate that almost reached 6 per cent in September/October. Moreover, this recovery in indigenous manufacturing (the sector from which much of an eventual recovery in manufacturing employment is eventually likely to come) has been very widely spread. By the third quarter of this year, a majority of our 20-odd indigenous industries were in fact experiencing growth.
Last Thursday’s quarterly national output figures reflect this recovery in our manufacturing performance. It is true that these quarterly figures have in the past sometimes been subject to substantial subsequent revision. This fact was ignored by inadequately informed external observers earlier this year, when they treated a provisional drop of one-third of 1 per cent in the second quarter GNP figure – which has now been revised to a small increase – as if it had reflected a major economic setback.
But given the 3.5 per cent seasonally adjusted increase in industrial output now reported for the third quarter, and the back-up monthly data for manufacturing already released, we are, I believe, entitled to take some encouragement from this news, which has given us the first significant reported rise in GNP in 2½ years.
Moreover, after two dreadful years for Irish agriculture, the value of farm output has recently been shown to have increased hugely this year – to such an extent as to be likely to have added at least one-half per cent to Irish disposable income
Meanwhile, through lower imports from abroad and higher exports to other countries some of the negative economic effects of our fiscal adjustment will in fact be borne by other countries, rather than by our economy. According to Euroframe, the authoritative joint voice of the 10 European institutes that forecast future economic developments, this hitherto ignored factor will contribute to a reduction to about 4 per cent – or an average of 1 per cent a year – of the negative impact upon our domestic economy of our four-year €15 billion fiscal adjustment.
Furthermore, it is now clear that the overdraft character of the €35 billion facility (an overdraft facility rather than a loan) now made available to us offers an opportunity to reduce quite considerably our debt interest payments. Far too much attention has been concentrated upon the 5.8 per cent interest we would have to pay if we drew down the whole of the financial facility now available to us.
The Department of Finance has in fact built this factor into its estimates of our debt interest payments in the years immediately ahead. Moreover, with this overdraft backing, we may in time also be able to borrow from the markets for much shorter periods than 10 years – at very much lower interest rates than we would have to pay for longer loans.
Such a positive outcome would, of course, depend upon our not needing to use more than €10 billion of the IMF-European facility to supplement the financing of our banks – an assumption that has the support of the governor of the Central Bank as well as the Department of Finance.
The above potentially encouraging features in our economic and financial situation seem to me to merit much wider publicity than they have recently been receiving from our media.
Perhaps their listing here may diminish, even if only slightly, the mood of gloom that currently threatens our Christmas cheer!