This Christmas, many of us are heading to family in different parts of the country, lots are returning home and yet more are coming back to Ireland from abroad. Conversations in houses will vary, but lots of families, particularly those from the country, will look around their hometown or village and speculate as to what has changed.
In the past seven years, most of those conversations will have centred on what place closed up or who has left for where.
Might this year’s conversations be the first in a decade that talk about what businesses have opened up, who has bought something and who is coming home to start a new business?
The latest figures on the economy definitely suggest that the national conversation is beginning to change.
Last Friday, the ESRI published its most optimistic forecast in years.
The institute now believes that the domestic economy grew by 5.2 per cent this year and it forecasts that this will continue again next year. (I’m using GNP here, not the more distorted GDP figure.)
Most encouragingly, it forecasts a drop in unemployment towards 7 per cent next year, bringing the total number of people working to above two million.
These types of numbers have led to the usual warnings about overheating. Such worries are premature.
When you still have an unemployment rate twice that of your two biggest trading partners, the US and Britain, there is plenty of capacity in the economy.
We are in a deflationary world and this looks set to last.
Even the latest evidence about the amount of wages paid out in the economy shows that although the economy is growing and employment is rising, wages aren’t going up.
In fact, last week numbers published on the total amount of wages (compensation of employees – as it is known in the jargon) shows that total wages peaked at an average of €21 billion per quarter at the end of 2008 but are now €18.1 billion, having slipped down to around €17 billion in 2010.
Given we are seeing wages not taking off and unemployment still high, this slack in the economy suggests it is far too early to worry about overheating.
Until the rate of unemployment is down to as low as possible, there can be no talk of overheating. And this expansion should be allowed to go for some while yet.
But why is it happening in Ireland when the rest of Europe remains firmly in the doldrums?
Aren’t we supposed to be linked to these countries? After all, we are in a currency union with them.
The reason for this divergence between Ireland and the rest of Europe is that Ireland isn’t a European economy in any meaningful sense. As a result, it’s hardly surprising that we diverge economically.
We are an Atlantic economy, not a continental economy. We have deep trade, investment and family links to the English-speaking world.
Most of our imports come from Britain, Dublin-London is the busiest air route in the world and over 85 per cent of our exports are generated by American multinationals based here.
Our world is the Atlantic world. When we lose our jobs we don’t emigrate to Italy or France – we go to Britain, the US or Canada. This is our world and it is forged by deep historic, financial and human links. The Atlantic is and has always been our trade route.
We are not a continental race, but an Atlantic one.
So when the Atlantic English-speaking economies are doing well, we do well. In the past few years the US and Britain have been growing strongly and they have helped to drag us out of recession.
There can be no better indicator of how divergent the European and the US economy is right now than the fact that last Wednesday the Americans raised interest rates, while the ECB is still cutting.
Quite how we ended up using a continental currency is beyond me, but that’s what has happened and this means the economy will always be a bit lopsided.
Right now when Europe is weak we get very low interest rates and a currency that is falling against our major trading partners.
This makes us hyper competitive – as evidenced by the huge increase in British and US tourists in Ireland this year.
The lower continental interest rates will also coax people to spend if they feel a bit more confident.
Confidence is the other part of the jigsaw, which explains why the consumer is back in significance in Ireland.
I have always believed in “the buzz”. There is an economic buzz, like there are all sorts of other buzzes.
When you are self-employed, the economic “buzz” is perceptible. You know when it’s not there and, if the buzz returns, you can sense it too.
This isn’t the most scientific approach to the economy, but economics isn’t too scientific.
In fact, I’d go so far as to say that in economics what is important is rarely complicated and what is complicated is rarely important.
We are irrepressible social animals, prone to bouts of optimism and pessimism. We are deeply irrational and emotional.
We are the polar opposite of what economists contend we are, beings driven by rationality and calculation.
We are profoundly affected by each other’s moods and we get giddy together and depressed together too.
The confidence thing, or the buzz, is the collective feeling that only the deeply irrational get. And this giddiness is infectious on the up and the downside.
It’s the same giddiness that prompts us to fall in love, follow ridiculous football teams and be enormously influenced by each other’s moods, attitudes and notions.
The buzz is what Keynes referred to as the “animal spirits”, which dictate the ebb and flow of the economy.
Once people become confident after a long period of financial depression, the buzz is infectious and it spreads like a virus.
In the bust, people with money saved and those with debts tried to pay them back; the buzz disappeared and risk-taking plummeted. Bank deposits rose in tandem.
Now these savings are being dipped into as the buzz takes hold. This could go on for some time.
Happy Christmas, and let’s see if those conversations are changing?
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The headlines are nice, but I’m somewhat nervous about the premise. As an Atlantic economy, we should always be looking over our shoulder at the 900b gorilla in the room – the USA. For a fascinating, if somewhat lengthy, review of the place we are in, I recommend that you settle down in a comfy chair, and read David Collum’s ‘Year in Review for 2015’
You can find the pdf here:
https://s3.amazonaws.com/cm-us-standard/documents/2015_Year_in_Review_PeakProsperity.pdf
Bah Humbug! David’s reliance on official statistics is his Achilles heel, but still the best writer in Ireland by a long shot, keep up the good work. Happy Christmas to all.
We should look at aligning our currency with Sterling. We are in the same economic cycle, quarter of the island is in the sterling area, we speak their language,our legal system is the same, the bulk of our trade is with USA/UK, we all have family connections in USA/UK etc
“(I’m using GNP here, not the more distorted GDP figure.)´´
It this not an error? It is backwards is it not? GDP is the distorted one which takes the profits from multi-nationals earned abroad but booked here into account. Please correct me if I am wrong.
Plus the GNP figure is 5% calculated of GNP not of GDP it comes back to 3% if so (because of the distortion I think).
Anyone? There should be an ecoomist or two out there.
“(I’m using GNP here, not the more distorted GDP figure.)´´
It this not an error? It is backwards is it not? GDP is the distorted one which takes the profits from multi-nationals earned abroad but booked here into account. Please correct me if I am wrong.
Plus the GNP figure is 5% calculated of GNP not of GDP it comes back to 3% if so (because of the distortion I think).
Anyone? There should be an economist or two out there.
Merry Christmas from 29C Nelson in South Island NZ “”Ireland GDP Growth Rate 1997-2015 | Data | Chart | Calendar | Forecast The Irish economy advanced 1.4 percent on quarter in the three months to September of 2015, following a 1.9 percent expansion in the previous quarter. Personal consumption was the main driver of growth while capital formation slowed sharply and net exports declined. GDP Growth Rate in Ireland averaged 1.10 percent from 1997 until 2015, reaching an all time high of 6.20 percent in the first quarter of 1999 and a record low of -4.10 percent in the fourth… Read more »
Hi all, Lots of interesting comments to the last article – I’m strugling to keep abreast with reading all of them in this busy Christmas time and I do not know which ones to address, given my constraints. Juniorrjb wrote, “In fairness that’s only plausible if you believe that you receive no benefit when the taxes are spent – presumably, Gregorz and everyone else benefit from the roads, schools, hospitals, gardai, armed forces, fire brigade etc. and the structure and stability these make possible, in which case his point is pretty much misleading rhetoric.” and “He is misleading. He quite… Read more »
Good post as usual Grzegorz. you are right about the nanny state mentality that is so prevalent in this country.
Here is a post from Egon Von Greterz who I know you also admire. As usual he does’nt pull any punches in his analysis. He was on Max Keiser recently and it was a really good show.
Happy Christmas to yourself and all the other excellent contributors to the blog
http://kingworldnews.com/alert-the-next-global-crisis-and-collapse-has-just-been-ignited/
“follow ridiculous football teams”
Yeah – Leeds – you said it David!
Stealing the world can be fun
It doesn’t require a gun
Just hire some guy
To print to the sky
Then buy all the assets and run!
~@TheLimerickKing
I hope All this positive news about the economic forecasts is not going to be used to lure people with very happy lifestyles abroad too coming back into Ireland.
To
“When you still have an unemployment rate twice that of your two biggest trading partners, the US and Britain, there is plenty of capacity in the economy. We are in a deflationary world and this looks set to last.” Is it not dangerous to just look at headline figures? How many unemployed software developers/biochemists are there? The cost of hiring in the high-value sectors of the economy are gone through the roof. Once the tide goes out with a new global tax agreement we won’t look very clever. And a deflationary world it may well be, but tell that to… Read more »
Greece started the year in ruins and ended it in total obscurity. Its debt
market was collapsing by the end of 2014. The four largest banks needed a
bailout in January.191 The debt-to-GDP ratio was 175% with a numeratordenominator
double whammy (debt soaring, GDP collapsing).192 Unemployment
was running at 25% (50% for youth).193 Professional women—doctors and
lawyers—were turning pro (prostitution). The equity markets were tanking,
eventually prompting authorities to shut them down. Not shockingly, when they
reopened, they were getting clipped 25–30% per day (Figure 30). The country’s
entire sovereign wealth was in ruins—quite literally. The ruins were all it had
left.
Quoted from a post in Miles Franklin
US recovery as quoted from Andy Hoffman
Or how about yesterday’s abysmal Chicago Fed National Economic Activity report – including a way below expectations, significantly negative number for November, and a massive downward revision for October? “Surpassed” only by this morning’s horror of a November existing home sales print – which was “supposed to” have been flat from October, but instead plunged 11%. For that matter, how about the “strange” fact that, despite the Fed having “raised rates” last week, actual money market rates are still below 0.25%? In other words, in reality, they haven’t executed what they claimed.
And…
To wit, we are unquestionably amidst the end game of history’s largest; broadest; and most global fiat currency Ponzi scheme. Amidst the chaos of exploding debt, collapsing economic activity, and imploding commodities, currencies, high yield bonds, and even equities, we’ve reached the point where it’s becoming common knowledge that Central banks not only have been dead wrong in everything they’ve predicted and promised, but that the world sits at the precipice of economic ruin as a consequence of their policies. Led, of course, by the world’s printer-in-chief, the Federal Reserve.
Headline for Atlantic trade
“Something strange taking place in the Middle Atlantic Ocean – Oil-filled tankers crossing the ocean, turning around and heading back home”
Finally!
The essence, the ultimate summary, the “all you need to know”, the only single essay that you need to read to get all the Bullshit McW creates over the course of a year.
Ireland-Buzz-Atlantic
Atlanticists, a species doomed by extinction, caused by themselves, like someone drowning in the atlantic and still denying the very existance of water.
LOL
Isis understands the difference between corrupted money and honest exchange.
http://money.cnn.com/2015/12/04/news/world/isis-gold/
“Dublin-London is the busiest air route in the world”. It’s not. Not even close. Something like the tenth busiest in Europe, and well well down the Worlds busiest tables.
Greece is more integrated into the Eurozone economy than Ireland. How is that working out for Greece ? Maybe 2016 might be the year when the “leadership” in Athens wakes up and realises that the smartest think they can do is – leave the Eurozone, and relaunch the Drachma – leave the EU – leave NATO – default on all debts – adopt a flat business tax rate – close the border with Turkey – sell an island to the Russians, and another to the Chinese – and watch while the rest of the world implodes in another asset bubble… Read more »
Money printing is what is sustaining Ireland’s economy, currently.
Money printing in other currency blocs.
It has nothing to do with the circus in Kildare Street.
Season’s Greetings and a prosperous New Year to you ALL. It is interesting that David is almost accepting that deflation is the way of the future. That’s a start. The key tho’ is to get the CBs to realise that this is in fact the way things should always have been (Certainly since the beginning of the modern industrial age and in particular, mass production.) This raises one very fundamental issue (no doubt there are others) for the CBs (or their replacements if you prefer Tony – just so not to get hung up on CBs) WHAT should the target… Read more »
arty = party