Breaking the cycle of boom and bust

Cantillon: Trick will be positioning ourselves when things turn sour

The boom is getting boomier. The European Commission has estimated in its latest forecasts that Irish GDP grew by 7.3 per cent last year and would expand by a further 4.4 per cent this year. This is a logical enough forecast, given the huge expansion seen in the third quarter GDP figures published by the Central Statistics Office and the fact that there has been no evidence of a slowdown since.

The next question, of course, is whether this overstates what is happening in the real economy. There does not seem to have been huge movements last year in intellectual property assets or in the aircraft leasing sector – the kind that affected the 2015 figures in the famous “ Leprechaun economics” episode of 26 per cent annual growth.

However, contract manufacturing, where a multinational subsidiary based here arranges for goods to be produced elsewhere in Europe, artificially inflating Irish output, may have been a factor.

There is no”right” answer here. The domestic Irish economy probably grew by 5 per cent plus last year, more than twice the euro zone average. On any measure growth here is robust and the commission forecast for 2018 is also optimistic. For now, the budget forecasts for 2018 look well underpinned.


Sweet spot

Ireland is in an extraordinary sweet spot in terms of the international economic environment which has fallen our way more than we might have expected. Growth is strong in the US and in Europe has picked up beyond expectations.

Meanwhile, the UK has not suffered from the woes predicted at the time of the Brexit vote.

Alonside this, interest rates remain at historic lows, a vital factor given our relatively high national debt and also household and business debts.

There are dangers ahead – there always are, thought some do look particularly tricky. Brexit remains an unknown, with a strong chance of the UK/EU neogtiations hitting trouble. US and EU tax changes may be a threat. And interest rates will start to rise, though probably not until next year.

Growth here is bound to slow – some sectors are also close to full capacity – but the trick will be positioning ourselves for when the cycle turns. We have been spectacularly bad at doing this in the past. The challenge this time, is to break the cycle of bust following boom.