Archive for March 25, 2016

Ireland’s Economy Vulnerable to UK Exit

There are many bystanders across Europe awaiting with baited breath the results of the UK’s referendum on leaving the EU.  In most cases it’s extremely difficult to assess what the potential impact is going to be on the UK economy never mind others in Europe.  However there’s some consensus from some economists that it is the Irish economy could be most affected by a decision to leave.

Trinity College Dublin

Trinity College Dublin

The latest research is from the Oxford Economics group who have studied the potential impact on Ireland’s economy in some detail.  Their conclusions are that a ‘Brexit’ is almost certainly bad news for Ireland with the worst case scenario suggesting a 2.2 fall in Irish GDP.

The Irish economy is of course, in a period of recovery after a meltdown in the recession.  This  year however the economy is forecast to expand by nearly 5% with a similar expectation for 2017.  This growth rate would be seriously affected if the UK left the EU and an even bigger impact would be on small businesses in Ireland.

It is difficult to overestimate the links between the UK and Irish economies.  Although they are separate economies which is often highlighted to me when I can’t catch the news on BBC iPlayer Ireland when visiting Dublin – the UK is by far their biggest trading partner in Europe and the referendum is bound to have a huge impact.

Over 40% of Irish exports are sent to the UK and the percentage is probably much higher among smaller Irish businesses who often are completely reliant on UK trade. The actual impact though would depend largely on post-exit negotiations with both the EU and the Irish government.

There are certainly some much more favorable options which involve various settlements and agreements being made on immigration and trade.  These could possibly mean that the impact is fairly inconsequential although these are likely to take time to negotiate and it is expected that even the uncertainly would have some impact on the economies of both the UK and Ireland.

 

US Jobs Rise Again

There are many ways of measuring the success of an economy, however for ordinary people – levels of employment are certainly one of the most important. When people are employed, the benefits accrue to the economy as a whole. People with jobs earn money to pay taxes, buy goods and services and invest in the economy. In addition, people with jobs don’t need supporting with benefits and support for food, housing and healthcare.

American IP Address

So the March report from the US Labor Department was very good news, with the report that 242,000 new jobs were created last month in the USA. This was quite significantly higher than had been predicted by many economists who expected unemployment to begin rising mainly due to the global economic stagnation that has been taking place. IN fact there were rises in all sorts of sectors from food services, construction and education. In fact there were only a few sectors that did struggle including the mining industry which has been suffering directly over the last few months.

The reported Unemployment rate has held steady at 4.9% which still represents an eight year low. Of course, although this figure sounds quite manageable as a percentage it does however mean that nearly 8 million Americans are without a job. There are also an estimated 6 million people in part time employment who are actually wanting to work full time. These figures are based on a fairly static ‘participation’ rate which is the number of people who are working or looking for work in the US economy.

Although these results sound fairly promising, there are other reports which have more cause for concern. For one the state of the trade deficit which has got steadily worse over the last twelve months. The current deficit (the amount the US imports compared with it’s exports) is now at the highest level in nearly five years. The main issue is the fall in US exports which is largely the result of the extremely strong dollar. There are some interesting reports on NBC and ABC regarding these economic issues on their web sites but you’ll need an American IP address to access them.

This is a significant worry though, falling exports will inevitably eventually filter down into the jobs market. The reason is that exports represent the production of US made products using US labor in American businesses. Although domestic demand is good, without exporting goods then overall demand for US goods and services will definitely start to fall and cause unemployment to start rising again. The business community are well aware of these risks and there is an increased pessimism which could cause further damage to the US economic recovery.

Polish Government Increase State Control

It’s just over 3 months since the Poland Law and Justice party (PiS) won control over the country and ever since then they have been embroiled in a series of controversies.

First there have been a series of controversies over the press and media freedoms since the Conservative party came to power with a promise of supporting Catholic ideals and supporting families with economic aid. Many of the country’s leading media have seen new leader’s who are sympathetic to the new party. In addition the new government has packed judges into the highest courts to boost it’s power base and prevent controversial legislation being blocked.

poland-934971_640

The latest laws implemented have seen increased the governments control over the prosecutor’s office and expanded surveillance laws to the police and security services.   Many are worried not only about the authoritarian approach by the new Government but also how it will bring it into conflict with European democratic rules and standards.

The weakness of the economy is the government’s most important focus and one of the areas they are focusing on is the disparity between foreign and domestic capital,  Foreign companies transfer over 20 billion euros every year from the Polish economy.  More than 50% of the Poland’s GDP comes from foreign capital supported companies, and there are estimated to be only 6 Polish companies who can effectively operate on the world stage.

This is where the Government hope that they can redress the balance and rebuild Polish companies by increasing state control to support domestic companies.  The hope is that Poland can become less dependent on foreign capital in strategic sectors like banks, energy and the media.   Although it should be noted that the high growth experienced by the Polish economy over the last  few years has largely been the result of foreign investment.

The worry is that an open European market does not work alongside nationalistic interventionist economic policies.  Freedom of the press is important and you can already seen that criticism and problems are being suppressed in the media, although you’ll need a Polish proxy to see them on internet sites based outside Poland.

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