Archive

Exports are crucial for a return to economic growth but jobs will remain difficult to come by.

Some high-profile jobs announcements and a belief that the export sector is dragging Ireland out of recession are giving rise to long absent economic optimism. But, those jobs announcements notwithstanding, most economists have little comfort for the unemployed and are pointing to a jobless recovery.

Last week's Ernst & Young euro zone forecast (EFF) said that Ireland is well placed within the euro zone to experience a rebound in economic growth over the next 18 months. By the end of this year, Ireland is expected to rank 15th of the 17 euro zone countries in terms of its GDP growth, says the EFF. But it says that a 2.8% growth rate will see Ireland jump to second position in 2011.

"And we believe that there is actually room for even more growth on top of that because it is export led growth, says Colm Devine, advisory partner with Ernst & Young. "Behind Singapore, Ireland is probably the second most connected economy in terms of ability to export. When you put that together with the growth in exports, then it is a very good story."

But it is not such a good story when it comes to unemployment. Despite the return to growth, there will be no great influx of jobs. Only Spain has higher unemployment than Ireland and the EFF predicts that the unemployment rate will stand at 13.8% by the end of this year. Worse still, it predicts a medium-term average annual unemployment rate of 12.6% until at least 2014.

Graham Harrison, a senior economist with Oxford Economics, believes there is a lot to be positive about in relation to the Irish economy. The fact that the economy is likely to have emerged from recession in the first quarter, the fact that difficult austerity measures are well under way without huge industrial relations problems, and the fact that prices have fallen and competitiveness has improved are all major positives. But he, too, sees the issue of jobs as a serious problem.

"The recession may be declared over in the latest data but it will take a huge amount of time to recover all the lost jobs," he says.

There is a really long legacy impact for this recession. With most recessions, output falls for a few quarters and then comes back, recession over. But that is not the end of the story with this recession."

This is particularly the case on the jobs front because any recovery is likely to be export led. The export-related sectors tend to be more capital intensive and don't need a huge amount of labour, unlike construction, the public sector or retail where there is likely to be no growth, says Harrison.

"So on a very macro economist-type level, the outlook is quite optimistic. But to the man on the street, say for someone who was working in construction and lost their job, the outlook is still pretty bleak for five to 10 years.

"There was roughly a quarter of a million jobs lost in Ireland. Job announcements are great but if you are talking 500 here and 1,000 there and you put it in context against a quarter of a million jobs lost, that is a huge challenge," he says.

This view is largely backed up by the Friends First Quarterly Economic Outlook, released earlier this week. It suggests that real recovery will only happen if it is driven by the SME section of the economy and that is unlikely to happen for some time.

"While it is probable that the Irish economy is now technically emerging from recession, the reality is that this emergence is being driven by the multi-national sector, particularly the chemical and pharmaceutical part of the economy," said Friends First chief economist Jim Power in the report. "Unfortunately, this type of recovery will not result in any meaningful job creation or indeed tax-revenue buoyancy. What we really require is a recovery driven by domestic demand."

He says there are thousands of small companies hanging on by a thread. "Conditions remain very tough and many companies are finding it impossible to access the credit necessary to keep businesses going," he says.

And yet the type of stimulus that some believe is crucial to restarting the economy and give such businesses a badly needed boost is unlikely.

Power says the sovereign debt crisis in Europe is still the key external factor facing the Irish economy. Although it could keep interest rates low, it will also ensure that, "the cost of borrowing for errant states remains dangerously high".

This places a costly financial burden on the Irish taxpayer and means that "there is no option other than to continue to press ahead with the fiscal adjustment which must include a property tax," he says.

But not everyone believes that austerity will ultimately prove successful for Ireland and other similar countries. Earlier this week, The New York Times ran a high-profile piece suggesting that austerity had failed in Ireland.

"Rather than being rewarded for its actions, though, Ireland is being penalised," said the article. "Its downturn has certainly been sharper than if the Government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1% last year and remains in recession."

Colm Devine agrees that it is possible that too much austerity could lead to the dreaded double-dip recession. But, he says, GDP growth is a key difference between Ireland and Greece and Spain, to which it is now so often compared.

"Ireland is looking at a return to growth whereas that is likely to be delayed in those countries," he says. "We are not out of the woods and still in a very precarious position. But Ireland's export-led economy is a major advantage over other countries. Government spending will decline and consumer spending will continue to be under pressure but exports will grow."

But that too leads to its own risks. "For export led growth to really happen to the extent that it is needed, then it is dependent on other economies thriving, for example in the US and in Asia," says Devine. "If they falter, it is a serious problem for Ireland. 75% to 80% of our outputs are based on exports, so globalised markets are absolutely key to the future of the Irish economy."

Fearghal O'Connor

Back to top.