WHAT can we expect for Ireland in 2013? After seven austerity budgets and much belt-tightening, you could think prospects are bleak.
As the positive economist, I’d like to focus on the very real green shoots that are growing around three metaphorical large rocks.
Let’s start with the international economy. While the exports figures are important, I prefer to focus on the balance of payments: that is a measure of how much money actually stays in the country and a far better indicator of the impact of net exports in the real economy.
From the turn of the century, we were still selling more out of the country than buying in, but actually money was finding its way out of the economy all the while.
Let me illustrate with an example; Multinational A has its European headquarters in Dublin and sells goods outside the country. This amount is recorded as a positive in the exports figure for the year.
Multinational A repatriates its profit back to its US headquarters which is a greater amount than the export sales. This (greater) amount is recorded, as a negative, in the balance of payments. Now, if there are more indigenous exports, domestic companies retain the money in the Irish economy.
Therefore, when our balance of payments swung into surplus in 2010, this was strong concrete good news as it meant that there was more money swirling in the economy as our international trade was taking place.
In fact, this indicator has improved as the Balance of Payments surplus in Q3 2012 was 100 per cent higher than the same period in 2011. This is set to continue as the Irish Exporters Association expect another five per cent growth in exports this year and these revenues are filtering into the labour figures.
Enterprise Ireland announced their client companies had created 3,804 new jobs, and the IDA reported net creation of 6,570 jobs through foreign direct investment. This has been due, in no small part, to us absorbing hard-won competitiveness evidenced in part by the fact that productivity in manufacturing rose 31 per cent above their levels in Q1 of 2008.
All good on the international front, then. But how about customer confidence and general outlook at home?
Domestically, the entrepreneur spirit is still going strong, with 2,200 people setting up a business every year. According to the GEM report, the percentage of people spotting opportunities in their local area has remained at a similar level to 2008. According to the Small Firms Association, SMEs have the potential to create 20,000 jobs next year, in the right environment.
In addition Ireland has a higher than EU and OECD average percentage of early stage start-ups in the technology sector: 60 per cent of start ups expect clients outside Ireland and 71 per cent expect to create or have already created employment.
Our Government bond yield, for a long time was the cause of much anguish indeed, our bailout in November 2010. This is the cost of Government borrowing and hence, the lower it is, the lesser amount of interest that we need to pay and secondly, the more confidence expressed in us by our lenders.
The nine-year note peaked at 14 per cent in July 2011 and has tumbled to approximately 4.2 per cent. This month, the Irish Government was offered €7billion, when it offered to borrow €2.5billion: the sale, at a predetermined price, was well over-subscribed which was a “put your money where your mouth is” expression of belief in our ability to repay the debt and interest.
There are tentative, early signs that consumer spending is slowly getting off the ground. Retail Excellence Ireland published a pre-festive season forecast that retail sales would contract by 0.47 per cent over Christmas, but they were actually up, by 2-2.5 per cent. Personal consumption rose by 0.5 per cent in Q3 of 2012. Final domestic demand rose by 1.9 per cent in the same period, its first rise in 18 quarters.
So, what’s the problem then? Well, actually, a few things. All those good news are very heartening, but let’s not forget that our economy still needs a lot of work in the context of a Government that has an objective of taking more money out of it all the time.
The Departments of Social Welfare and Health will need to rein in their budget, talks of a Croke Park Agreement extension is on the table and a little over nine weeks to go until the next €3billion of the promissory note is to be paid (unless we get that elusive renegotiation of the debt).
Lack of corporate lending needs to be tackled, with lending to SMEs contracting by 16.5 per cent between Q1 of 2010 and Q2 of 2012, and lending to all enterprises contracting by 7.7 per cent. At the moment banks have a lot of money to lend. For example, in October Permanent TSB announced it had €1.74billion in excess of the amount it is required to hold in accordance with European Banking Authority regulations and one can see similar evidence at Bank of Ireland and AIB.
The worst of all is the debilitating noose of overborrowing around the household’s neck with the amount of debt relative to disposable income at an incredible 209.3 per cent. CSO figures indicate that we are also saving 14.2 per cent of our disposable income. In essence, we are develeraging the borrowings of yesterday and storing up our cash in case further economic pain is inflicted in the future.
As a result, the Irish consumer has a very strained pocket through which the Irish economy feeds on. It is clear that Ireland has made huge progress in getting through the issues been thrown at it, however, some areas are harder to make progress than others. There are some real signs of growth in certain parts of the economy in spite of our deep rooted legacy problems.
The year ahead looks a little brighter for Ireland as we hope that the previously imperceptible momentum gathers visible strength.
Susan Hayes writes about the Irish economy, finance and entrepreneurship at thepositiveeconomist.com. Her new book, The Savvy Woman's Guide to Financial Freedom, is available now.
