Economic recovery

 

RECENT WEEKS have seen the Central Bank, the Economic and Social Research Institute (ESRI) and the main stockbroking firms reviewing the state of the Irish economy. They have revised their forecasts for the outturn this year and most now anticipate an economic upturn at some point next year. Economics, as a social science, has none of the predictive powers of a natural science and therefore forecasts of future economic behaviour necessarily involve a margin of error.

Nevertheless, the consensus view of the forecasters reflects a quite plausible optimism about economic recovery. Both the Central Bank and the ESRI are hopeful of signs of a return to growth appearing by the second half of 2010. If that happens, it will mark the end of a three-year contraction in the economy which has seen an estimated 14 per cent decline in GNP from peak to trough.

The modest economic rebound forecast is partly predicated on what happens outside Ireland, particularly in the US. The performance of the American economy, whether it recovers or relapses, will influence what happens elsewhere in the world, not least in Ireland. Given the weakness of domestic demand, where people here are saving more and spending less, a return to growth next year will depend largely on world demand and on how well Irish exports perform.

Over recent months some encouraging indicators suggest the worst of the economic downturn might have passed. Tax revenues, having fallen sharply for much of the year, show signs of stabilising. Unemployment, while still rising, is increasing at a much slower rate as more immigrant workers return home. Consumer confidence, however, has yet to recover. And that is unlikely to happen before consumers have tangible evidence of the end of recession. Only then will they begin to spend more and help boost economic growth.

Recent political developments have also helped to lift some of the clouds of uncertainty gathering over the economy for much of this year. The passing of the Lisbon Treaty has restored Ireland’s position in Europe. Agreement by the Coalition partners on the revised programme for government has ensured greater political stability and facilitated the passage of legislation to establish the National Treasury Management Agency. And it has also given a Government, with little room for fiscal manoeuvre, an opportunity to chart a clear course to economic recovery in next December’s budget.