Publication of data on exchequer finances alongside the latest Central Bank of Ireland Quarterly Bulletin paints a picture of an economy bouncing along the bottom.
The numbers are not without a glimmer of hope, balanced, as always, by risks. A lot depends on events overseas.
The first chart contained in the Central Bank’s latest tome tells a story that would be astonishing if it were not so painfully familiar. If we had not lived through the events described by that picture we would scarcely believe that an economy – and a people – could have endured so much.
The simple chart of retail sales over the past six years begins, at the start of 2007, with this measure of consumer spending barrelling along at near double-digit growth rates: the last days of the Tiger.
Steep decline
Cue the global financial crisis and the domestic property collapse and we observe retail sales falling in excess of 20 per cent during the first quarter of 2009. It's as if somebody just shut down a quarter of the economy by decree.
Things subsequently bounced, a bit, but the consumer has been under the cosh ever since. A hint of an up tick in spending can be seen recently. This, along with an upturn in the economies of our major trading partners, is where the hope lies for jobs and the wider economy.
Much of the bulletin tells the same story: collapse, followed by grinding stabilisation. And, crucially, over the last few months something that could, at a push, be labelled “growth”. One truly dramatic reversal has occurred with Ireland’s balance of payments, one measure of whether or not as a nation we save or borrow from the rest of the world. This was in deficit by a near 6 per cent of gross domestic product in 2008. In 2014, it is expected to be 5 per cent of GDP in surplus. As with the GDP/GNP numbers, there are distortions caused by multinationals, but that doesn’t change the underlying story. Astonishing.
Hope comes heavily qualified. We have been here before: two years ago, the bank forecast GDP growth for the following year (2012) of 1.8 per cent. The number turned out to be only just above zero. Last year, they said it would grow by 1.7 per cent in 2013. They now think that number will be 0.5 per cent. Forecasts for 2014 have been trimmed again. But the bank is in good company: forecast errors of the major global agencies, like the IMF and OECD, have been equally large, if not more so.
Latest exchequer borrowing figures indicate that this year the Department of Finance has got its tax sums correct.
Weak consumer taxes
This is unusual so congratulations are in order. I'm not sure if that's because the department has acquired a better crystal ball. The headline accuracy does conceal offsetting errors in the underlying detail (weak consumer taxes, strong corporate tax revenues) and the economy has essentially been flatlining – an easier environment for forecasting.
Monthly swings in exchequer numbers can be anomalous, but they can contain hints of new trends. With the biggest month of the year for tax revenues still to come (November) it is way too early to conclude anything about full-year outcomes. Simply put, if tax revenues stay on target and expenditure stays below, the deficit as a proportion of GDP can only miss the target if GDP itself misses. Broadly speaking, we seem to be on track: if there is a miss, it won’t be by much, either way. But the deficit is still at an unsustainable level: it will fall because it has to. Either growth will do it the easy way or we will be back again with yet more austerity.
The economic significance of the debate over cuts of €2.8 billion or €3.1 billion, or somewhere in between, is about nil. But these numbers have acquired massive political import, albeit of a very short-term nature. Economic and political interests will have converged by this time next year. The only thing that ultimately matters is whether or not the growth forecasts come true. If the forecasts for modest growth are right, the deficit will remain on target and the Coalition will be feeling much better about itself.
