News

Economic growth must be backed by balance and respect

A powerful and positive dynamic is underway in the economy.

It offers the prospect of improving conditions for employees and citizens across the State but must be considered against the backdrop of our experience through the great global financial crisis during 2008-10.

The good news first. Irish economic momentum is picking up. You can see it anecdotally on the roads as traffic levels recover but the statistics are even more telling. GDP is growing, unemployment is falling, and most sectors of the economy are expanding.

All of this is taking place with interest rates near record lows. Inflation is muted and the currencies of our two largest trading partners — the UK and the US — are powering ahead versus the euro. This is manna from heaven for export-dependent industries and tourism, both of which are being made highly price competitive in economies that are, themselves, growing strongly.

With such a string of planets aligned, the prospects for Ireland are hugely encouraging. It begs the question, what could go wrong? The short answer is — plenty. Let’s start in the housing market. Rents are accelerating and house prices are, once again, on the march.

This is valuable to existing houseowners and also to the entire banking system. With rising prices, owners in negative equity have a shot at reaching house prices that clear debts. Loans that were impaired and instead are repaid help banks replenish their coffers and can stimulate more lending, which further stimulates economic activity.

For first-time buyers, however, this dynamic is a challenge. It has always been a tough ask for young people to get on to the property ladder. However, house prices over the long-term average multiple of industrial earnings have been about four. Let’s inflate that to adjust for low interest rates to times five. This suggests average house prices should be at most €200,000.

Anyone living in the Dublin area will know that it is a challenge to find houses in that price bracket. Solving the supply side issues around housing and expediting the production of ample house numbers is a key hurdle for policymakers.

Another hurdle is income expectations. After seven tough and bruising years, employees across the public and private sectors are, understandably, seeking step-ups in pay.

Part of that may be linked to the housing market dynamic but the introduction of property and water taxes are also a factor. Negotiations are likely over the next year with Government and companies on this matter.

It would be a poor outcome if such negotiations led to either elongated industrial action and/or labour cost inflation that undermined the hard-won competitiveness that has been chiseled out in recent years.

The Government can play a role in this. By easing the tax burden for income earners in a way that provides tangible net additions to monthly after-tax pay packets, the State can help sustain the competitive edge Ireland has regained while rewarding those who choose to work in our State.

One of the awful attributes that crept in to parts of society during the Celtic Tiger was a sense of arrogance created by plenty. Ireland’s reputation as a friendly, co-operative, and dignified small nation was challenged by a cohort that advanced brashness and materialism as the new found brands that defined the nation.

If we are travelling in to a period of renewed economic vigour, let’s hope it converts in to an Ireland that is defined by self confidence, balance, and a respect for those who buy our goods and services.

Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.

Article Source: http://tinyurl.com/kbwqb42


Back to News >>
^