I wrote an article last week that was carried by Monday’s Evening Echo. The goal was to highlight some positive elements of the current economic situation. I must have been in a very good mood as I took this ball and ran with it. Some revised numbers have been released since this was written but, in the main, it holds up.
Reasons to be cheerful parts one, two and three
The Irish economy has taken a battering over the past four years. The unemployment rate has risen to 14%, the banking system collapsed with the crash in the property market and a €20 billion hole opened in the public finances.
These are all problems that will not be resolved easily. However after four years where the news was unrelentingly negative, we have had occasion recently where some positive economic developments leaked into news cycle. Here are nine that are worth recounting.
First, there were the preliminary results from Census 2011. In the run up to the census it was believed that the population was just under 4.5 million. The census revealed that the population was actually 4,581,269. There are nearly 100,000 more people living in Ireland than was previously thought.
There are reasons to believe that the return to emigration, particularly among Irish nationals, is not as large as anecdotal evidence and media reports have been suggesting.
The full impact of these extra 100,000 people will be seen when the CSO revise their population statistics over the next few months. Although it is possible that some of these extra people could be in the under-16 or over-65 dependency groups, most of them will be in the 16 to 65 age bracket so it is likely there are more people working than was previously estimated by surveys.
Second, the census also confirmed the positive age demographics of the Irish population. With many developed countries set to face an increased burden due to an aging population, Ireland, in contrast, is experiencing a baby boom. The natural increase in the population (the difference between births and deaths) was a record 45,000 per annum.
As recent as 1996, the natural increase was recorded as 18,000 per annum. Ireland is set to have a young and productive population in the coming years.
Third, the number of people visiting Ireland is increasing. In the first six months of 2011 three million visitors came to Ireland from abroad. During the same time in 2010 there were 2.6 million visitors. This 13% increase in visitors was spread across our main tourist markets; the UK, the US and Europe. More people visiting the country means more money coming into the country.
Fourth, there is also more money coming into the country as a result of our booming export sector. Last year there were €44 billion of goods exports from Ireland to the end of June. This year has already seen €47 billion paid from abroad for goods manufactured in Ireland.
Cork has a vital role to play in Ireland’s exports. More than 60% of Irish goods exports are in the chemical and pharmaceuticals sector and this industry is heavily concentrated around Cork. Even in the midst of the global downturn pharmaceutical exports from Ireland increased by 60%.
The pharmaceutical sector is very capital intensive and does not generate the number of jobs that would reflect an industry that dominates our exports. However, it does provide employment at wages higher than most other sectors. This will be further boosted by the announcement that Sangart are going to create 250 jobs in Carrigtwohill, up from 120 when the project was initially announced just a month ago.
Fifth, the agri-food sector is also on the up. This sector makes up one-twelfth of our overall exports and is much more labour-intensive than the chemicals sector. Exports of food and live animals are up 20% on 2010.
The best performance has been in the dairy sector where exports are up nearly 50% on last year. Our temperate climate and quality of grazing land means to potential to expand is virtually unlimited as there is huge demand for Irish milk in the powdered milk and baby formula markets.
Sixth, domestic consumption is beginning to stabilise. The retail sales index is showing a small increase on last year. This may only be 0.2% but it does indicate that the drops of recent years have ceased.
Sales of new cars have been strong component of retail sales in 2011with 81,175 new passenger cars sold up to the end of July. By the same time last year 73,846 cars had been sold. There are many households in serious difficulty but sales of ‘big ticket’ items such as cars are slowly recovering.
Seventh, figures from the Central Bank show that the balance sheet of the household sector is slowly improving. At the end of 2008, the household sector has loan liabilities totalling €203 billion. The most recent figures show that this has fallen to €185 billion. There has been an €18 billion fall in household debt in just three years. Most of this is because of repayments.
There have been calls recently for blanket debt forgiveness of mortgages. It is important to note only 3% of Irish households are in mortgage arrears. Around half of Irish households do not even have a mortgage. Data from the Financial Regulator highlights that 90% of mortgages are being repaid according to the terms of the original contract.
Eighth, the Irish government is benefitting from reduced interest rates. At the most recent EU summit the interest rate on the money we are borrowing from the EU as part of the EU/IMF programme was reduced from 6% to 4%. This has the potential to generate savings of close to €1 billion per annum on interest costs.
Ninth, the yields investors require when purchasing Irish government bonds have been falling. In the run-up to the summit, the two-year bond yield was 23%. Such a return is indicative that these bonds were considered very risky.
There is €12 billion of Irish government bonds due to mature on the 15th January 2014. Each holder of that bond will get €100 on that date and €4 per year in interest for holding the bond. Buying that bond would return around €110 for the investor if it was repaid in full.
On the 18th of July this bond could be bought for just €68. There were huge doubts Ireland would be able to repay these bonds after the expiry of the EU/IMF program in 2013. This bond is now trading at €90 which is a huge rise in just a few weeks.
In the context of our overall problems these positive developments are small. They are not going to provide jobs for the 350,000 unemployed or fix the banks or close the remaining €15 billion budget deficit.
When taken collectively though they do show that the Irish economy is not flat-lining. The willingness of Wilbur Ross and a group of investors to pump more than €1 billion into Bank of Ireland shows that there are others who have confidence in the Irish economy to recover.
This recovery will be difficult and there is a lot to be done to get the public finances under control. There will be a huge burden placed on society in trying to achieve this, but it is better to be doing this with a growing population, positive demographics, increasing exports, rising tourism, booming agriculture, stable consumption, reduced household debt, lower interest rates and falling bond yields than without these positive developments.