The OECD’s reputation took a hammering during the financial crisis. It not only failed to spot the banking contagion that triggered the meltdown, it grossly underestimated the severity of the crash when it first hit, and the impact of subsequent austerity programmes on growth rates.
There were, however, some exceptions to these forecasting howlers. In 2006, it predicted the Irish economy was careering off the rails courtesy of an out-of-control property market, a warning that famously drew the ire of then minister for finance Brian Cowen.
As a result its pronouncements on the Republic carry a certain historical imprimatur that can’t easily be shrugged off by the current crop of politicians.
The rather blunt assessment in its latest report that the Irish health system has “failed” in terms of cost, patient satisfaction and waiting times, and that the Government is singularly underperforming on the housing issue overshadows the positives of Ireland’s recovery and will rankle with Government, which never seems to be off the back foot on either issue.
On the financial vulnerabilities still lurking in the system, the OECD homes in on non-performing loans (NPLs) in the banking sector, which has moved into the spotlight again with the potential sale of 18,000 Permanent TSB mortgages to vulture funds.
But instead of focusing on the social costs of having residential mortgages in the hands of unregulated entities, it highlights “judicial inefficiencies” relating to home repossession, lending weight to the argument that banks can’t be blamed for selling off bad loans if the legal route to home repossession is too arduous.
Durability
In its preface the OECD says the Irish economy “ has demonstrated impressive durability over the past three decades”, and that the speed of recovery here, relative to the depth of the crisis, has been swift by OECD standards.
It also notes that household consumption has been revived, aided by cuts in direct household taxes, strong employment growth and modest import price inflation.
Its headline forecast for 2.9 per cent growth this year looks skinny in comparison to other forecasters, but its assessment may have concluded prior to the acceleration of growth in the latter part of 2017, which prompted upgrades elsewhere.
While sluggish productivity is a well-documented global issue, linked to the switch from industrial-based activities to service-based ones, the gap between foreign-owned and local enterprises here, which continues to accelerate, goes to the heart of the Irish economy’s over-reliance on multinationals and has never been properly examined or addressed.
“ The resilience of the Irish economy hinges on unblocking the productivity
potential of these local businesses,” the OECD concludes.
