IRISH CONSUMERS are too “scared out of their wits” to drive economic recovery at present, according to one of the country’s leading economists.
With everyone in Ireland in an insecure position, and many suffering income drops or unemployment, we were not spending and people were saving “like mad”, said Prof John Fitzgerald of the Economic and Social Research Institute (ESRI) yesterday.
As a result, the recovery would be driven by foreigners wanting to buy our goods and services rather than domestic demand.
Until people had clarity about their future and some certainty about their employment, it was difficult to see a vigorous recovery getting under way. “However, I think we will reach that stage and get a vigorous recovery,” he told the Checkout retailing conference in Dublin yesterday.
From as early as next year, the economy would start growing again by 5 per cent a year, he predicted, as confidence returned.
Prof Fitzgerald said in order to restore order to the banking sector the banks needed to be stuffed with taxpayers’ money, killed off and then put up for sale.
He likened the process to the production of foie gras, under which geese are force-fed in order to fatten their livers. “Under the foie gras approach to banking, you need to stuff money down their gullets and then kill them.”
While this process would be painful, by the end of the year, provided the Government carried through with its plans, the Irish banks should be recapitalised and in a position to lend again.
However, at the end of this process the main banks would no longer be wholly Irish-owned, he forecast. When AIB and Bank of Ireland were eventually sold, Minister for Finance Brian Lenihan would get back more than he put into them. However, Anglo Irish and Irish Nationwide would “lose a bomb” because of the bank guarantee given in 2008.
Prof Fitzgerald said the Minister had delivered on a plan to reposition the economy and as a result just one more tough budget was needed. If that was delivered any further adjustment would be much less painful.
He warned if wages failed to fall, and instead stayed static, the recovery would be delayed. However, there was definite evidence that wages were falling.
In the recovery, he predicted, the economy would grow by about 5 per cent a year between 2011 and 2015. He said unemployment would rise to the end of this year, but while even the construction sector would recover, it would never reach the levels seen previously. As a result, to avoid long-term structural unemployment, new jobs would have to be found for the people who formerly worked in the sector.