Posted on Monday 17 December 2012 by Ulster Business
By Stephen McVey
According to a recent report, Ireland's adversity, which has enforced reformed attitudes, may prove to be the making of its economy. The problem is that there is still a rocky road ahead, with an unpredictable nature to how circumstances out of its control unfold.
The annual report, prepared by the Brussels-based Lisbon Council, sees steady improvement amongst what it refers to as the 'crisis countries' of Greece, Portugal, Ireland and Spain.
"The eurozone is turning into a much more balanced and potentially more dynamic economy," it states. The '2012 Euro Plus Monitor' considers Ireland to have made important progress over the past year. "Of the four prime euro crisis countries, Ireland has progressed to the turnaround stage, with an excellent chance of reaching the final stage of success over the course of next year," it says.
Goodbody Economist Juliet Tennent has pointed to a slow recovery that will not be a smooth ride.
"Ireland has been taking the right steps in addressing its fiscal issues but still has the highest budget deficit in the euro area so there is some way to go yet. It is still expected to grow this year while the euro area as a whole is expected to contract. However, the growth is all coming from net trade as the domestic economy continues to contract," she said.
Ireland has been labelled as the eurozone's poster child for austerity and it now wants to be the most improved student. But Oxford Economics economist Neil Gibson believes the positives must be considered in context.
"We predicted 2012 would be a tough year for Ireland. Despite Ireland's progress on the implementation of the EU-IMF programme, the on-going problems of the eurozone together with weak domestic demand, rising unemployment and a decline in real incomes along with austerity measures have conspired to downgrade short term growth prospects," he said.
In its quarterly bulletin for the fourth quarter of 2012, the Irish Central Bank forecasts GDP growth of 0.5% in 2012 and 1.9% in 2013 in the Republic Ireland.
With Ireland's outlook revised from 'Negative' to 'Stable', Dr. Esmond Birnie, PwC chief economist in Northern Ireland gave Ulster Business his opinion on Ireland's prospects in the coming year.
"There is a strong possibility of slow recovery next year, contingent on what happens in the rest of Europe. But even with a whiff of recovery, there won't be any real growth in employment figures until 2014 at the earliest. Future progress hinges on the considerable uncertainties. For example what will happen with Greece and the eurozone," he said.
In a recent statement, French President François Hollande referred to Ireland as "a specific case" because a recapitalization of the banks took place using public funds that deeply aggravated Ireland's debt situation and obliged it to follow a rigorous plan.
Esmond Birnie has picked up on this tag for Ireland as a special case amongst European crisis countries.
"Things are on a sounder footing but there is still that uncertainty about the future. In a sense, one of the possibly unfair aspects is the huge sacrifices of the population down the tracks of austerity. It may be worth it in the end but there would still be considerable years to get through before there is light at the end of the tunnel."
This unpredictability about what happens in the rest of Europe is a common concern. Neil Gibson has assessed the impact of weakness across the EU on Ireland.
"The biggest worry is related to cross border trade. The more uncertain and precarious the eurozone crisis becomes, the more the euro will become cheaper," he said.
"If exchange rates shift, which would not happen on the strength of ROI economy alone but a weak eurozone, this may bring the currency down and that would shift shopping patterns. Though they have already altered considerably there is still a partial dependence on cross-border shoppers in the north and given domestic problems this could tip more retailers towards closure in the north."
In the 2012 Euro Plus Monitor report, warnings of uncertainty and risk lie behind the praise for progress: "We find that the eurozone has advanced significantly further on the rocky road to balanced growth in the future. However, this underlying structural progress is largely obscured by the recession – and it remains uneven and subject to serious risks."
Aidan Gough in his role as Strategy and Policy Director advises on collaborative strategy, policy and initiatives to help InterTradeIreland in boosting North/South economic co-operation to the mutual benefit of both economies on the island. Recent surveys carried out by InterTradeIreland have caused concern.
"The situation has been protracted. There are still 45% of businesses reporting a decrease in sales, 50% of them are still contracting or winding up. It is a difficult environment, however businesses are resilient and are adapting to what has become the new normal."
Mr Gough explained that InterTradeIreland has witnessed a worrying drop in cross-border shopping as revealed by an unofficial car park survey of southern registrations of cars in the car parks of major shopping centres across the border areas.
"First of all the overall number of cars in total is down within these car parks but more importantly, from our point of view, the level of southern registration cars in the shopping centres are at their lowest level. They are now only about 35%. At one stage they represented over 65% of the cars. Cross-border shopping is at the lowest level that it has been for a long time."
In an analysis of the implications for Northern Ireland, Esmond Birnie again alludes to the foreign factors at play.
"It really does depend on the eurozone and whether it will pull down exports to the rest of Europe. The impact on Northern Ireland would be significant. Consider the extent of the integration of the two economies. The Republic of Ireland is Northern Ireland's largest export market and statistical evidence shows that there was a decline in recent years," he said.
Neil Gibson does not agree that the implications will be as important.
"A slow recovery in the Republic of Ireland will impact on Northern Ireland but perhaps not as much as might be expected," he said.
"Demand for the agri sector is less sensitive to wider conditions because people need to eat and thus demand only shifts slightly in response to economic conditions. There are more modest trade links in other sectors which would be impacted and so the overall effect is important, but modest in scale."
The Irish and Northern Irish economy can only worry about events within their control and hope the Central Bank's faith in the eurozone holds out. Neil Gibson recommends that businesses prepare for the worst case scenario.
"It would be prudent for businesses to at least consider how a potential collapse in Europe would impact their business," he said.
For Europe, the fight seems to be going the distance.