The Irish Times view on the economy in 2019: The spectre of Brexit
Despite the economic success of recent years, much remains to be done to underpin the economy for the future
Taoiseach Leo Varadkar and British prime minister Theresa May after talks at 10 Downing Street in London in June. Photograph: Philip Toscano/AFP/Getty Images
It has been an unusual year of economic news. The headlines have been dominated by Brexit and the significant risks which lie ahead. Yet the economic data for the year itself has been almost uniformly positive, with strong growth and rising employment.
The Government is now in the somewhat awkward position of simultaneously trying to plan for the possible continuation of strong growth and the pressures this will put on our national infrastructure, while at the same time preparing for the potential hit of a no-deal Brexit. Rarely have the possible outcomes for the year ahead varied so significantly.
In many areas – employment, disposable incomes and the public finances – the losses made during the crisis have now been recouped, after a number of years of very strong growth. Of course the heavy price of the crisis remains and can never be wiped out. But just as it is important to acknowledge this, we should also recognise the progress made in the past few years and the real gains which it has created.
Measuring the progress of the Irish economy is, of course, fraught with difficulty. The activities of the multinationals here distort the economic data and the impact of this has become even more pronounced in the past few years.
The traditional measure of activity – Gross Domestic Product – probably increased by about 7.5 per cent this year. But even when the impact of multinational distortions is factored out growth was probably still in the region of 4 to 5 per cent, way ahead of the international average.
The housing crisis
More importantly, this was reflected in things that really matter in people’s lives – increasing job numbers , rising incomes and falling unemployment, with the rate now back to its lowest level in a decade.
In turn this has reduced the numbers facing, or at risk of, poverty. It is legitimate to recognise this progress, while at the same time asking whether more can be done, particularly to tackle the homeless crisis.
Indeed housing represents one of the central economic and social challenges facing the Government. There are some signs of progress, in terms of increased supply coming to the market, but it is slow and in some areas the Government has not put an adequate focus on the required speed of response.
A major challenge for 2019 is to get the various arms of government sufficiently engaged in an urgent effort to move this forward – and to accept that the State has a central role to play, as well as the housing industry. Increased supply is, quite simply, the only answer, for apartments, houses and rental properties.
A way needs to be found to avoid a sudden no-deal exit by the UK – even if no withdrawal agreement is concluded
Housing is part of a wider investment agenda facing the Government as it tries to push through its new long-term investment programme, also involving other key ares like public transport, roads and the whole climate change agenda. The worry, as ever in politics, is that these longer-term issues will not be prioritised as a general election, now likely in 2020, starts to come into view. A key challenge for our politics next year is to stay focused on the priorities.
Of course no priority will be greater than our response to Brexit – and here the Government faces a particularly high level of uncertainty. This is centred on whether a withdrawal agreement is concluded which means the transition period – when little will change – will come into force when the UK leaves, lasting until at least December 2020. This would offer significant protection for the Irish economy.
However, if no withdrawal agreement is reached, as of now the UK will leave without a deal, threatening significant economic disruption.
There are other possibilities – an extension of the article 50 process, or even a second referendum, for example. But as of now the Government needs to step up its no-deal planning, in case the worst happens.
A way needs to be found to avoid a sudden no-deal exit by the UK – even if no withdrawal agreement is concluded. But finding a way to do this is politically difficult and technically challenging. And with a vote only due in the House of Commons in late January on the withdrawal agreement, time is running dreadfully short. Even if nobody wants a no-deal Brexit, it could still happen.
There are other threats, too, for example from trade tensions and the risk from international tax changes.
A sobering report from the National Competitiveness Council has cautioned that our economy is overly reliant on a few large multinationals and that these trends could threaten some of these big players.
Despite the economic success of recent years, much remains to be done to underpin the economy for the future.
It is a pity that the Brexit issue is sucking up so much time and energy – and could yet divert very significant resources which could be better deployed elsewhere.