The past twelve months have seen the unfolding of the most severe economic downturn in decades. This contraction has been unique in the Irish experience in that it has occurred on a global rather than a national scale. The recession has left soon-to-be graduates facing an uncertain and unstable job market.
The global nature of the current downturn makes the typically Irish solution of emigration by graduates redundant.
What’s more, our economic outlook has never been so uncertain. Over the past year, the number of people signing on the Live Register has more than doubled. And coupled with the setting up of the National Asset Management Agency (NAMA), a costly “bad bank” which will buy up Irish banks’ toxic assets, this has raised serious concerns over public finances. However, despite this uncertainty, a number of recent developments suggest that Ireland could be set for a return to growth and a more robust labour market in the not too distant future.
Economic commentators have long been cautioning against US President Barack Obama’s commitment to clamping down on tax havens such as Ireland. Since getting into office, he has made good on his promise. However, the target of his administration’s efforts has been locations such as the Cayman Islands and Bermuda. This has resulted in a number of multinationals flocking to Ireland over the past few months despite our economic woes.
For example, Interxion, the data centre provider, has announced that it plans to invest €12m in the construction of a second data centre in West Dublin by 2010, while Helsinn Birex Pharmaceuticals announced plans back in May to put an end to the outsourcing of certain research work and instead to keep it in Ireland. Even more exciting is the decision taken by Accenture, the management consultancy firm, to move its Headquarters from Bermuda to Grand Canal Dock in Dublin in order to avoid reforms in the way US multi-nationals are to be taxed. And other firms look set to follow suit.
Major corporations are now reviewing their corporate structures in light of new tax laws and regulatory changes, and it looks like Ireland will continue to benefit. A report entitled “The Day After Tomorrow” by PricewaterhouseCoopers reveals the “unambiguous opportunity” that exists for Dublin’s Irish Financial Services Centre (IFSC) to establish itself as a new industry hub for the $200bn global reinsurance market. The report also highlights Ireland’s creditability as a reinsurance centre – half of the major reinsurers already have some operations here. This is unquestionably good news for graduates who have feared the flight of high-value jobs to locations where the cost of doing business is substantially lower.
Indeed, a report by BCA Research argues that too much pessimism surrounds Ireland’s prospects. It points to the country’s “overlooked economic flexibility,” and suggests that Ireland has the potential to become the next Hong Kong if it can return to the export-based growth model it relied on before 2002. Recent attempts to attract the kind of multi-nationals which will service the global rather than the domestic economy, while creating highly-skilled jobs, suggest that this is exactly the type of policy which the Government is eager to achieve.
Fears of another Great Depression are beginning to fade after the return to growth of several major European economies (such as Germany) and the growing belief that the US economy is preparing to join them. In Ireland, a string of recent economic indicators have given the clearest signal yet of the bottoming out of the recession. Industrial output is beginning to rise despite tough global conditions.
Lower consumer prices are providing a considerable boost to the competitiveness of the Irish economy, while a rise in monthly prices has calmed fears of a deflationary spiral. Even the rate of deterioration in retail spending is slowing: it rose 2.2% month-on-month in June. All this has set the stage for more positive economic output forecasts for the future. Just as forecasters were overly optimistic about the Irish economy in 2008, it is now evident that they have been too pessimistic about prospects for 2009.
Of course, for Irish citizens at least, any recovery will be measured in terms of its effect on employment. Last month has seen the lowest number of people signing onto the Live Register in fourteen months. Many economists now believe the Government’s unemployment forecasts are too pessimistic. If that is the case, we can expect to see a considerable boost to the public finances if the actual unemployment rate undercuts Government projections (the estimated cost to the Exchequer for every person on the Register through welfare payments and lost tax revenue is around €20,000 per year).
While there have been many favourable developments in the Irish economy in the last few months, they should be greeted with caution. The short-term challenges are still immense: employment needs to start growing and it is unreasonable to rely solely on foreign firms as growth engines; the budget deficit has to be addressed without damaging the recovery of an already frail economy; and easy access to credit needs to be restored if businesses are to thrive.
However, once these challenges are overcome, the long-run potential for growth is present and a richer job market should await future graduates