Beruflich Dokumente
Kultur Dokumente
But the tiger's roar turned to a whimper as the economy was hammered, with
Ireland overdependent on housing and financial services. Irish banks funded an
unsustainable property boom that saw glitzy apartment blocks thrown up for
miles around Dublin, and thousands of investors snap up buy-to-let places. When
the bubble burst, the government was forced to guarantee the deposits of the five
biggest institutions in an attempt to prevent a Northern Rock-style bank run. With
questions over the banks' very survival, the government has since had to shore
up their assets by agreeing to take over the worst of the sector's property loans.
Tax receipts from property and financial institutions dried up and unemployment
soared, along with the public-sector borrowing requirement. A few weeks ago,
finance minister Brian Lenihan announced sweeping cuts to stabilise the
shattered public finances as he presented the harshest budget in decades. He
unveiled public-sector pay cuts and reductions in uneployment and child benefits
in a bid to achieve savings that would restrain the deficit to a projected 11.6% of
GDP next year.
But the move was opposed by trade unions, which had been pushing for an
alternative plan that envisaged 300,000 public-sector workers taking 12 days'
unpaid leave in 2010, as well as agreeing to reforms in working practices.
Despite signs of industrial unrest, there are indications that the worst is over:
Dublin said recently that GDP expanded by 0.3% in the three months to
September, though it had shrunk by 7% over the previous year. Kevin Gardiner,
the economist who coined the phrase "Celtic Tiger", predicts that the economy
will do no worse than bump along the bottom in 2010, with growth turning
positive by the end of the year.
But Ireland will take years to recover from a crash that has dented national pride
and could yet result in a winter of discontent as Lenihan's brutal budget takes
effect.
Irish Economy
Current Trends
Annual figures for GNP and GDP growth, consumer price inflation, employment,
wage growth and other economic data, together with our current short-term
forecasts, are presented in the Summary Table of the latest Quarterly Economic
Commentary. Forecasts over a longer time horizon are available in Recovery
Scenarios for Ireland and the Medium Term Review.
The latest ESRI research on the Irish economy may be viewed on the Irish
Economy Today page of our website.
The authoritative source for most Irish economic data is the Central Statistics
Office. Links to their latest publications for the main variables of interest are
provided below:
Overview
Ireland is a small, open, trade-dependent economy. It accounted for
approximately 2.1 per cent of overall output in the Euro Area in 2007. Its
openness is reflected in the international mobility of its labour and capital,
demonstrated by strong migratory flows and high levels of foreign direct
investment. Its high level of external trade is signalled by a high share of
combined exports and imports in Gross Domestic Product (GDP) which was just
under 150 per cent in 2007. In recent decades the Irish economy has been
transformed from being agrarian and traditional manufacturing based to one
increasingly based on the hi-tech and internationally traded services sectors. In
2007, the services sector accounted for 64 per cent of Irish GDP, while industry
accounted for 33 per cent and agriculture just 3 per cent.
Economic Growth
2010 is an ESRI estimate and 2011 is a forecast, see latest Quarterly Economic
Commentary .
Beginning in the early 1990’s, unprecedented economic growth saw the level of
Irish real GDP double in size over the course of a little more than a decade.
There have been many reasons advanced for Ireland’s success over this period,
including EU membership and access to the Single Market; Ireland’s low
corporation tax rate and a large multinational presence; a high proportion of the
population of working age; increased participation in the labour market especially
by females; a reversal of the trend of emigration toward immigration; sustained
investment in education and training; co-ordinated social partnership agreements
and a more stable public finance position.
The pace of economic growth decelerated in the second half of 2007, largely due
to a contraction in housing construction. In 2008, output fell for the first time since
1983, and the recession deepened in 2009. House prices increased substantially
in the late 1990’s and in the first half of this decade, and investment in housing
as a percentage of GNP rose from around 6 per cent in 1996 to almost 15 per
cent in 2006. Given this weight of house building in total economic activity, the
slowdown in the construction sector has acted as a significant drag on overall
economic growth. In addition, the difficulties in the international financial markets
that emerged in 2007, and worsened throughout 2008 and 2009, have
compounded Ireland’s economic and financial challenges. The global credit
crunch and the associated recession in the economies of all of our major trading
partners reduced external demand for Irish exports.
Consumer Prices
2010 is an ESRI estimate and 2011 is a forecast, see latest Quarterly Economic
Commentary
In terms of price developments, the rapid growth in the economy resulted in high
levels of CPI inflation in the first few years of this decade. Inflation slowed in
2004 and 2005 but rising interest rates and soaring commodity prices, together
with the boom in construction, contributed to higher inflation in 2006 and 2007.
Oil prices peaked in July 2008 at over $140 per barrel. However, as the global
recession took hold in the second half of 2008, commodity prices fell
substantially and interest rates were slashed. As a result, the average price level
began to fall. While inflation averaged 4.1 per cent in 2008, consumer prices
have been falling since the last three months of 2008. Consumer prices fell by
4.5 per cent in 2009.
Unemployment
2010 is an ESRI estimate and 2011 is a forecast, see latest Quarterly Economic
Commentary.
Ireland’s remarkable growth performance throughout the late 1990’s and into the
first half of this decade had strong positive implications for employment growth.
The total number of people employed rose from 1.2 million in 1990 to 2.1 million
in 2007 – an increase of 75%. The rate of unemployment dropped to historically
low levels in recent years, averaging 4.5 per cent in 2007. This period also saw a
reversal of the trend of emigration that characterised the 1980’s, and a net
inward migration of over 67,000 was recorded in 2007. The current economic
downturn has already manifested itself in the labour market. The number of
people on the Live Register increased by 70% in 2008. The average rate of
unemployment for 2009 reached almost 12 per cent, and is expected to average
over 13 per cent in both 2010 and 2011.
Public Finances
The strength of the Irish economy in recent years contributed to healthy public
finances. In 2006, a General Government Surplus of 3 per cent of GDP was
recorded. However, the current downturn has seen the public finances move into
deficit at an alarming pace. Taxation policy in Ireland over the last ten years has
led to a structural rise in the importance of capital taxes as a source of revenue.
As a result, the downturn in the property market has led to a sharp reduction in
tax revenues. The situation worsened throughout 2008, as the slowdown in the
residential sector spread to other sectors of the economy, affecting both
consumption and employment and therefore leading to a more general slump in
tax revenues. The implications for the borrowing requirement have been severe,
with the General Government Deficit reaching 14 per cent of GDP in 2009. The
general government deficit is expected to reach 31 per cent of GDP in 2010.
These figures include the cost of the bank bailout monies for Anglo Irish Bank
and Irish Nationwide Building Society. Excluding these exceptional payments to
the banks, the underlying deficit in 2009 and 2010 would be 12.1 per cent and
11.5 per cent respectively. It is estimated that the level of national debt will
exceeded 68 per cent of GDP in 2010, up from 12 per cent in 2007.[1]
For the latest analysis and short-term forecast for the Irish economy see the
Quarterly Economic Commentary.
For a medium-term forecast for the Irish economy see Recovery Scenarios For
Ireland: An Update and the Medium-Term Review.
SIGNS OF THE TIME: The collapse of Ireland's frenzied real estate market has
pushed the country into recession
Photograph for TIME by Alan O'Connor
Print
Email
Reprints
Facebook
Twitter
MORE
0
digg
It's been close to 140 years since Weir & Sons began trading jewelry on Grafton
Street, a hot spot for Dublin shoppers. The business has weathered the years
well. "We've seen ups and downs, wars and rebellions," says Neville McDowell,
jewelry buyer for the family-run company. The latest downturn will test it again.
After a "phenomenal" decade, McDowell says, a squeeze on spending means
sales this year are expected to dip by 10%. Even for a hardy company, says
McDowell, "business is tough."
It's a familiar refrain across Ireland. After more than a decade of runaway growth,
the good times have ended. In September the Celtic Tiger, the best performing
economy in the euro zone by some stretch in recent years, became the bloc's
first to officially slide into recession. After expanding at three times the E.U.
average between 1996 and 2007, Ireland's economy is expected to shrink by
0.75% next year, according to government predictions.
In some ways, Ireland has been a victim of its own success. Rising incomes and
government policy failures pumped up a housing bubble that is now deflating
fast, hurting Ireland's outsized construction sector. Factor in soaring
unemployment, weaker consumer spending and the gummed-up credit markets,
and Ireland is facing "the most challenging fiscal and economic position in a
generation," Finance Minister Brian Lenihan told parliament on Oct. 14. "We
must all pull together if we are to return to more prosperous times."
Ireland's attempts to navigate its way out of trouble will be watched closely by its
neighbors. The country's economic boom, which followed years of
underperformance, drew both international plaudits and curious visitors.
Delegations from Chile to China dropped in to learn first hand from its
turnaround. But just as Ireland offered a blueprint during the good times, so its
recent stumble — and prospects for recovery — may offer lessons to others in
the grip of the global downturn.
Shortly after the turn of the century, though, the housing boom began to spin out
of control. As incomes and employment in Ireland rose, cheap credit and tax
incentives fueled a buying frenzy that pushed up both prices and housing stock:
the cost of an average house rose almost three-fold in the decade through 2006,
while some 40% of the country's housing was built in the last decade, according
to Brian Devine, an economist at Dublin-based stockbrokers NCB. At the
Grange, a swish 11-acre (4.5 ha) development in Dublin, realtors sold 15 luxury
apartments a week even before work started on the complex in 2006.
The construction mania fast became "a growth that squeezed all the other organs
of the economy," says John Fitz Gerald, an economist at Dublin's Economic and
Social Research Institute (ESRI). That starved Ireland's exporters of valuable
resources. The result: the country's share of euro-zone exports has slipped by a
fifth since 2001, while housing investment grew to 14% of Ireland's economy by
2006, roughly three times the European average. When values and demand
began to fall — house prices fell 10% in the year to August, while apartments at
the Grange are now selling at a rate of just one or two a week — it left a gaping
hole in Ireland's growth prospects.
Repairing that will require the nation to kick its housing addiction. In future, says
Rossa White, chief economist at Davy, a Dublin-based brokerage, "Ireland, as a
small economy, will rely on trade to generate increases in living standards. We
need to get back to that. We lost sight of it." That won't be easy, as long as major
trading partners are themselves caught up in the slowdown; the U.S., for
instance, buys roughly a fifth of Ireland's exports. It'll take some time, too, for
exporters to redeploy resources such as labor freed by the housing slowdown.
Such a rebound will be welcomed by the Irish government. Thanks to the fall in
tax receipts caused by the housing-market collapse, Ireland's budget deficit is
forecast to hit 5.5% of GDP this year — well beyond the 3% limit imposed by
Brussels. That has left Dublin little room to spend its way out of trouble, a fact
made clear when Finance Minister Lenihan announced a slew of tax hikes and
spending cuts on Oct. 14.
The government is also keeping a close eye on the country's banks. Though
heavily exposed to the domestic property market, they haven't yet needed the
kind of cash injections seen elsewhere in Europe and the U.S. But with credit
markets freezing over, the government has guaranteed deposits and debts for a
handful of big lenders, amounting to well over $500 billion in liabilities, more than
twice the country's GDP. The next step will be to ensure credit gets to Ireland's
good-quality businesses over the next year or two, says Davy's White. On
Grafton Street, Weir & Sons is among the luckier ones. It owns its black-and-
gold-fronted store, so at least it doesn't have to worry about rent. And its prime
location makes the shop popular with tourists. McDowell, for all his worries,
remains bullish about Ireland's long-term prospects. "We're a very small, very
young country," he says. "It doesn't take much to get it going again."