THE ECONOMIC tide is slowly turning. For the first time in three years, there are now more reasons for hope than for despair.
This week a raft of indicators, when taken together, give grounds to believe that the foundations of a jobs-generating recovery are falling into place. By economists’ standard definition, the recession ended in the first three months of the year according to the CSO’s latest GDP data. There are tentative signs that consumers are spending again. Every measure of retail sales in April was up, albeit marginally, on the low points registered at the turn of the year. All the latest exports numbers – also available to April – show strong growth, and a weaker euro since then should provide some additional boost.
June’s exchequer returns, released yesterday afternoon, are the most up to date of the main economic indicators released this week. Tax revenues in the second quarter of the year barely changed on the first three months, or on the same period of 2009. While this may not appear a cause for celebration, it is the best outcome since 2007 and gives perhaps the strongest indication in recent times that both the economy and the public finances are stabilising.
But encouraging as these developments are, they do not herald immediate relief for many whose jobs and businesses are at risk. On Wednesday, we learned that the number of people signing on for jobless benefits in June rose yet again. It will be next year at the earliest before the economy is strong enough to generate net increases in employment. According to insolvency numbers released on Thursday, companies are going under in record numbers. Many businesses are struggling to navigate brutal trading conditions and severe credit constraints. As bankruptcies tend to rise in the second half of the calendar year, more are set to founder.
Nor can risks to the recovery be ignored. The international financial system is fragile. Irish banks and many across Europe are profoundly weak, and governments’ finances are under pressure almost everywhere. At close of business yesterday, the effective rates of interest on Irish (and Portuguese) government debt remained at dangerously elevated levels, for the third consecutive week. But the recent policy response to these challenges gives some reassurance. Budgetary consolidation measures are being rolled out across Europe. These could help quell the sovereign debt crisis. The announcement earlier this week that more banks are to be included in Europe-wide stress testing offers hope that there is greater political will to address solvency concerns.
Much is uncertain. The shocks of recent years will reverberate for some time to come. The failure of a system so critical to the function of the economy as that of finance will impair the functioning of the credit mechanism and put sharp upward pressure on public indebtedness over the medium term. But if banks and budgets can be put on a solid foundation, the global economic recovery should continue, and Ireland’s along with it.