Will the Irish economy really recover next year? The Federation of European Employers (FedEE) writes .....

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The European Union’s statistical agency Eurostat is predicting that the Irish economy will expand by 2.3% next year, - well above the predicted 1.5% growth rate for the European Union as a whole.

Perhaps the oracle will engender a self-fulfilling dream

Ireland’s once 'tiger' economy has performed more like a heavily wounded antelope since 2008 with a more than 10% cut in real GDP followed by a very sluggish recovery last year. However, now the European Union is predicting that growth will accelerate to 2.3% next year, well above the predicted growth rate for the EU as a whole.

But are there really any grounds for optimism? On the domestic demand side of the equation the latest retail sales figures for January 2012 indicate that consumers are spending considerably less than even in 2011. Hardest hit have been motor vehicles, electrical goods and clothing, footwear and textiles – with overall sales volumes (excluding motor trades) declined by 2.7%. The population is simply stockpiling its wealth rather than spending it – with savings rising to 17% of disposable income from just 8% in 2008, even though disposable income has been cut by 13.5% over the last three years.

Unemployment also continues to run at a rate of 14.6% with the long-term unemployed rising to 60.3% of total unemployment in Q4 2011 compared with 51.5% a year earlier and 33.3% in the fourth quarter of 2009.

So much of the good news for the Irish economy springs not from current realities, but from gathering confidence levels in areas such a foreign direct investment (FDI) and the demand for Irish exports. Indeed most of the multinationals already operating in Ireland plan to retain existing investment levels over the next 2-3 years, whilst Chinese investment is likely to take place into the Shannon free zone. The government has also shown willingness to think laterally and launch initiatives such as the “Succeed in Ireland scheme” that gives individuals financial rewards if they encourage employers to create jobs in Ireland.

According to Robin Chater, Secretary-General of the Federation of European Employers (FedEE) “So much of the European Union’s optimism is based on a fundamental change in Ireland’s fortunes - but with very little substance on which to peg such rising expectations. Ireland’s leading politicians are doing all they can to talk up the country’s future and perhaps the oracle will engender a self-fulfilling dream. However, the best that can realistically be anticipated next year is a growth rate somewhat below the overall EU level, with longer-term prospects dependent on windfalls from foreign investors and continuing efforts to curtail domestic debt levels.”

What is FedEE?

The Federation of European Employers (FedEE) is the leading organization for multinational companies operating in Europe. It was founded in 1989 with assistance from the European Commission and has its head office in London, UK. The Federation is a direct member organization currently chaired by Ford Europe.

For further information and comment contact Alison Merrett on 0207 520 9264 or Alison.merrett(at)fedee(dot)com or Robin Chater directly on robin.chater(at)fedee(dot)com

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