9 October 2008 Edition
€9.4 billion deficit, rising unemployment and falling output show crisis in Irish economy
Recessionary wake-up call for Government
BY ROBBIE SMYTH
RECORD Exchequer deficits, a ten-year high in unemployment, deepening household debt, and a second consecutive quarter of falling output, sales and investment proves conclusively that the 26-County economy is in recession. And this has prompted Sinn Féin’s Arthur Morgan to cite the newly-released figures as a “significant wake-up call” for the Fianna Fáil/Green Party coalition.
Morgan’s call for a stabilisation package of job-creation initiatives, redundancy retraining, an anti-inflation package for households, alongside tax reform and cost pressures reduced on small business, was borne out by the Central Statistics Office figures which showed quite healthy performances in some economic sectors and a resilience in consumer spending despite massive increases in fuel, energy, food and transport costs.
The need to act quickly was highlighted by unemployment figures released on 1 October. They showed an unemployment rate of 6.3 per cent, with 79,565 people joining the dole in the 12 months to the end of September, an average of 1,530 every week.
Other serious aspects of the economic downturn were highlighted by figures released this week by the Department of Social and Family Affairs (DSFA) and the Money Advice and Budgeting Service (MABS). There are now 6,500 people receiving mortgage interest supplement, a 60 per cent increase in the year. MABS data shows that the average level of debt of people seeking help from the agency has increased by 50 per cent this year. The average debt facing MABS clients is €11,400.
However, the flippancy of Government responses to all these new figures and a failure to produce accurate economic data on tax flows in the economy shows a coalition clearly unable to take stock of an economy that is in danger of being let slip into a serious economic downturn.
The CSO’s Quarterly National Accounts for the second three months of 2008 show that the value of all goods and services decreased marginally by 0.8 per cent compared to the same period in 2007. It was the second consecutive quarter of small falls in economic activity, with the economy as a whole now 1 per cent marginally less economically active than in the first six months of 2007.
The CSO report highlights a 1.4 per cent drop in consumer spending (personal spending by households on goods and services). Spending on capital investment fell 18.8 per cent on the year, with the CSO reporting “significant declines in house building” and in the purchase of transport equipment and machinery compared to 2007.
This week, the Economic and Social Research Institute has forecast that the current recession will last through the whole of 2008 and 2009, with a 2009 unemployment rate of 8 per cent as total numbers at work fall 14,000 in 2008 and 47,000 in 2009.
On the plus side, though, the CSO figures showed that net exports were €1.242 billion higher in the second quarter of 2008 compared to 2007, and the volume of output by 26-County industry was up 1 per cent on the same period last year. This figure is significant as output in the construction sector fell by 12.2 per cent, and output in distribution, transport and communications was down 4.3 per cent on the same period last year. So some sectors of the economy are out-performing their 2007 output position.
The relatively buoyant consumer spending is all the more remarkable considering inflationary figures that over the year have shown considerable pressure on household budgets and individual disposable income.
Inflation figures released for August registered an annual inflation rate of 4.3 per cent down marginally from 4.4 per cent in the 12 months to the end of July, with housing, electricity, energy, gas and oil costs jumping 11.5 per cent. Mortgage interest rates rose during the first six months of 2008, as did electricity prices. There have been marginal falls in heating oil and rents paid in the private sector.
Food costs have risen by 6.4 per cent, health costs were up 6.3 per cent while the main sector registering a decrease was clothing and footwear down 5.1 per cent as the clothing retailers battle for market share amid falling spending by consumers.
While households cope with rising prices and wonder about the growing amount of negative economic data, what can they think of a government that has yet to produce accurate figures this year on just what the tax shortfall for 2008 will be?
In 2008 there has been a consistent failure to forecast the correct level of tax revenue for the year and plan borrowing in 2009 and beyond. In June, it was predicted that there would be a €3 billion shortfall, by July it had risen to €5 billion.
Brian Cowen, speaking from New York after the GDP figures were published, claimed that the budget would set out a “new strategic direction” but Sinn Féin’s Economy spokesperson, Arthur Morgan, provided focused proposals that don’t need a Budget to kick start them.
Morgan said what the starting point must be. “Government and its agencies must address the state’s under-performing export market, where 94 per cent of exports are currently from multinational corporation bases and not indigenous industry.”
Offering positive proposals, Morgan said Sinn Féin wants “job creation prioritised with an immediate retraining programme provided for construction workers to get them into renewable energy, retro-fitting and other industries”. In addition, it wants a reduction of “cost of living pressure on the low-paid and those dependent on social welfare by establishing an anti-inflation package that incorporates a reduction or freeze in public services charges including public transport”.
“It is also imperative that the Government bring forward a set of proposals to reduce the cost pressures on small businesses, including fast-tracking company law legislation to reduce regulatory burdens while protecting workers’ rights.”
And Morgan proposed “fundamental reform of the tax system to ensure we have both a low and a fair tax regime, but in the interim the Government must use the tax system to assist those on low incomes”.
“In the longer term, we must turn our economy around. We need an economic model based on principles of high-quality employment, environmental sustainability, tax justice and world class public services – and that is what the Government and we in Opposition really need to be talking about.”
The 26-County economy in a snap-shot
1 per cent Fall in economic activity in the first six months of 2008 compared to 2007
12.2 per cent Fall in construction spending
4.3 per cent 12-month inflation figures for 12 months to end of August
11.5 per cent. Jump in housing, electricity, energy, gas and oil costs
6.4 per cent Increase in food costs
€9.4 billion Government spending deficit as of 30 September
€11.5 billion 2009 borrowing requirement of Irish Government
94 per cent Percentage of 26-County exports that came from multinationals
6 per cent The contribution of under-performing Irish industry to exports
79,565 rise in unemployment in 12 months to end of September
6.3 per cent Current unemployment rate
8 per cent 2009 unemployment rate predicted by the ESRI