As Irish households face the biggest fall in living standards since 2008, the question is are we heading toward a recession? And if so, how prepared are we? We asked the experts their views…
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Prof Stephen Kinsella, University of Limerick
Stephen Kinsella
Professor of Economics, University of Limerick
“There is some evidence the US economy is already in recession, but that doesn’t mean it will translate here. The EU typically lags US policy response by 18 months. If the US goes into recession the average person here won’t notice it — unless there’s a very strong change in an area like housing or if multinational corporations (MNCs) start laying people off.
“The biggest risk for us is of pull-outs or downsizing by foreign direct investment firms. We saw it in 2009 when Dell left Limerick. I’m not saying it will happen — but in bad times you learn ‘the impossible becomes possible’. The company that said it would never leave, leaves.
“In terms of the overall economic picture, the situation is so uncertain. There is no obvious shock coming — but the Ukrainian situation is very serious and no one understands what it will cost us in the winter.
“I don’t agree with official announcements that inflation will fall next year. Nothing that is causing it is going away next year. With that in mind, the ECB will probably raise interest rates. And this is what most economists won’t say — the objective of increasing interest rates is to cause a recession. And you don’t do that without people losing their jobs.
“My advice is keep a very, very close eye on MNCs, have a very good sense of what people are spending money on, see whether exports and particularly imports are getting more expensive.
“The outlook is trending downwards but as the ESRI showed this week, there is still a good chance the economy will grow next year. If it does we should get through the worst of it. I am not a soft-landing merchant, but based on the data that’s available now, I think we will be all right.”
Fergal O’Brien
Director of lobbying and influence with Ibec
“We spent the last month talking to all our members around the country. It was our first big in-person engagement post-Covid and we had hundreds of conversations with businesses. Everyone reflected what they are hearing externally and the sentiment is quite concerning.
“However, when we sat down around the table and heard their own stories, the majority are still expecting to grow this year, make new investments and hire more staff.
“I think that captures where we’re at now in real time. Looking ahead, everyone is reflecting on what inflation is going to mean for economic activity and people expect lower growth.
“Having said that, I think the Irish economy is going to outperform the international average and grow fairly robustly for a number of reasons.
“First, we have delivered a higher rate of jobs growth in the Irish economy in the past two years than almost any other developed economy in the world.
“Second, the position we are in is in stark contrast to the economy in 2008. Irish businesses and households have completely deleveraged. Households now have significant net wealth positions — €75,000 per household on average in cash savings alone.
“As to whether the economy is overheating? There is no question that globally too much money was put into the economy. The most insightful statistic I noted was that for two years during Covid, the US Federal Reserve printed 40pc of all the dollars ever printed in history.
“Central banks are trying to fix that now. And the important thing is how we respond to inflation.
“In the last 10 years, wages have on average been growing at about double the rate of inflation. It’s impossible in the current cycle for employers to match inflation, and it would be very damaging for the economy. It will cost us lots of jobs in the future and we will see business closures because we will become too uncompetitive.
“Overall, I think in summer 2024 the Irish economy will be performing a lot stronger than other countries — but of course a global slowdown will affect us. We are in a better position than most to cope.”
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Prof Gaia Narciso of Trinity College
Gaia Narciso
Head of the Department of Economics, Trinity College
“Russia’s invasion of Ukraine brought war to Europe and economic uncertainty to the globe. Ireland is a small, open economy and its economic outlook is deeply linked to global dynamics.
“Ireland may be particularly affected by supply-chain disruptions, especially given the effects of Brexit. In this context there are three main factors to consider: inflation, the cost of construction, and increases in interest rates by the ECB.
“What should we expect then? Overall, in a context of uncertainty in energy prices and monetary policy tightening, it is likely Ireland’s economic growth will slow toward the end of the year. Issues related to inflation and higher costs of living will be part of the discourse for the next few months and will be the key challenges for the Government.
“New measures should be introduced to shield low-income households from rising living costs. While tackling these issues, the Government should not miss the opportunity to turn to renewable energy, reducing Ireland’s dependence on imported fuel and energy, while at the same time tackling the biggest challenge ahead of us — climate change.”
Colm McCarthy
Economist
“There is a serious risk of a general slowdown in the international economy now — and I don’t think this Government is prepared for anything other than the next press release.
“The ECB have been busy buying government bonds for years, which is basically printing money. They’re stopping that now because it is feeding inflation, and they’ve announced an increase in interest rates.
“That means the cost of extra borrowing has gotten more expensive and the Government needs to be very careful. We ran out of road the last time and ended up with the Troika.
“It’s like they’re busy commemorating the Famine, but have forgotten what happened 10 years ago.
“Our debt burden is huge. We have been able to reborrow, as it matures at a very low rate of interest — but that day is over. Interest rates are rising and it could be pretty painful.
“On top of that, Finance Minister Paschal Donohoe made a speech 10 days ago which was pretty serious, but he didn’t get great coverage for it. It was written by the fellas in Finance. They are able to count, and they are getting nervous.
“A lot of the MNCs here route profits through Ireland that really arise somewhere else — and there are fears, which Paschal obviously shares, that this revenue will begin to evaporate.
“It’s a bit like 2008. when there was a huge amount of tax revenue on stamp duty in property — and then it suddenly all vanished. These are taxes on transactions that could disappear like snow off a rope.
“As for inflation, the surge is coming from imported inflation — it’s all over Europe — so all this ‘foot-stamping’ is pointless. I don’t know what’s going to happen in the next year or so, but what the Government is doing at the moment is careless and risky.
“We are more exposed than other countries in the eurozone. If a few of them get into trouble, can’t borrow money and are forced into a Troika-type programme, then we are on the list.”
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