The Irish economy is probably one of the most studied in the world. Despite it’s size – estimated at less than 0.5% of the Worlds economy, it’s quoted and studied by economists across the planet. Only last week I read several articles in the Chinese press reporting on the Housing Boom/Bust and the effects of Brexit on the Irish economy.
One of the reasons is that the Irish have a cultural reach far beyond it’s tiny size and a high profile in many of the world’s biggest economies. Most British and Americans for example where well aware of the rise and subsequent fall of the Irish economy in the first decade of this century. It’s often covered in the US and UK media and during the boom year a decade ago the success of the Irish economy was well covered on the BBC News (check here for access via a VPN).
However another reason for it’s popularity with economists is that the Irish economy is often seen as a microcosm for advanced western style democratic nations. They have targeted and in many senses succeeded in attracting high value/high tech businesses through offering competitive corporate tax rates. Indeed many companies like Dell and Microsoft sell good s and service to the much larger UK market just across the sea.
However although the Irish economy was successful, expanding much quicker than most European countries -it’s over investment and huge housing boom led to a spectacular crash in 2008. It’s taken a long time and many sacrifices by the population for the economy to recover, and in recent years has started to experience more modest growth. However many worry that history is about to repeat itself.
That gentle recovery fueled by several austerity budgets has started to gain speed. In 2017 the Irish economy grew by over 5%, the highest growth in the Euro-Zone for the fourth successive year. It looks great news yet as we know, GDP rises are not the only indicator of an economy’s success.
There are problems, for example Ireland has one of the highest per-capita GDP figures in the world, much higher than the UK or Germany for example. Yet despite this high level of productivity, wages are still quite subdued and the property prices are rapidly approaching the high levels of the previous boom years. The result a hugely successful economy where it’s citizens can’t afford to buy property is always a cause for concern.
Some of the success is indeed slightly artificial due to the relative undervalue of the single currency. It is the same reason that Germany has always been so successful, a German Mark or Irish Punt would have a much higher value than the Euro does. This is often a criticism of the single currency where the highly competitive and efficient economies benefit from the low valuation of the Euro where as less competitive countries like Greece always struggle. There are full lists of these in the economic data sections of the BBC website, check out also some of the content on BBC News which you can access here from abroad.
The Irish recovery has been impressive although it has taken many years,. so why are we worried? Well the economic success doesn’t always seem to be filtering through to the Irish people and budgets. Some of that is due to the fact that much of the success is merely on ‘the books’ where foreign firms are allocating profits to Irish branches in order to benefit from the low corporation tax. The level of unemployment is still much higher than across in the UK – most countries with high growth levels do not tend to have 9% of the population unemployed.
The worry is that the Irish economy overheats again under the rising prices of property. The problem is that the main instrument to control this is higher interest rates but as these are set in Germany then there’s a lack of control there. Cyclical boon and bust scenarios are extremely damaging to ordinary citizens who often end up paying the price.