The exodus of Irish government ministers overseas for St Patrick’s Day has attracted the usual criticism from expected quarters. I saw one suggestion on social media that our Ministers are overseas enjoying themselves, spending our money. Figures have been bandied about in relation to how much these overseas trips have cost over the years, and they are significant. While the figures are not surprisingly very large, those who use them as a stick with which to beat the Government are guilty of that age old condition of  ‘knowing the price of everything and the value of nothing’. St Patrick’s Day gives Ireland unbelievable international profile and it would be remiss of us not to exploit that to the largest extent possible and use the opportunity provided to market the country aggressively wherever we get the opportunity.

If a cost-benefit analysis of these annual trips were to be conducted, I strongly suspect it would show a very healthy positive balance. It is truly astounding the global profile that a tiny country like Ireland manages to attain at this time of year. The fact that the Taoiseach and other officials can get such easy access to the White House is quite amazing and does make us the envy of large US corporations and many countries around the world. Is it any wonder that one third of US foreign investment into Europe last year ended up in Ireland? This is an astounding statistic, but one which has a very beneficial impact on the economy and on Irish society. The annual trip to the White house and to other locations around the US undoubtedly plays no small part in this incredible success. Long may the annual exodus continue, and the predictable begrudgers should be treated with the disdain they deserve.

To coincide with the national feast day, Goldman Sachs in London produced its latest update on the Irish economy. In general it makes for a pretty upbeat assessment of our economic progress and prospects, but for the first time in such reports, political risks are now starting to be highlighted. Goldman Sachs is worried about Sinn Fein, not that this will upset Sinn Fein too much given the issues surrounding some of the activities of that investment bank in recent times, not least in Greece.

Specifically, Goldman is comparing the policies of Sinn Fein to those of Syriza in Greece and Podemas in Spain. Both of those parties have utterly rejected austerity and Syriza now has the unenviable task of actually doing something about it. Most evidence to date would suggest that it is not turning out terribly well, although it does need to be given more time.

Sinn Fein, along with a lot of like-minded Independents has taken a similar stance against austerity and has benefited enormously at the electoral booth and in the opinion polls. With just over a year at most to the general election, the policy implications of electoral success for Sinn Fein and/or the myriad of left-wing independents are starting to be taken more seriously. So they should!

With all of the key economic indicators now moving very compellingly in the right direction, one wonder if the anti-austerity politicians will be deprived of oxygen over the coming year? The parties of government can justifiably claim that the policies of fiscal consolidation that they inherited in 2011, having been put in place by the late Brian Lenihan, are now starting to work and have not destroyed the Irish economy as its detractors predicted. Obviously a lot of pain has been imposed on a lot of people and many public services have been seriously deprived of funding with a consequent deterioration in the quality of those services. Be that as it may, it was always essential for Ireland to move in the direction of living within its means again, because even without the costs of the banking debacle, Ireland still had a very precarious fiscal situation due to the politically motivated expansion of public expenditure and the erosion of the tax base from 2000 onwards. Trying to restore order was always going to be painful and difficult, but we are now starting to emerge at the other side. Goldman Sachs is correct in pointing out that to change tack now could be very dangerous for the economy and it would most certainly risk putting us back into an even deeper hole than the one from which we have just emerged.



The lack of understanding of some people regarding the implications of the decision we made to join the euro back in 1999 continues to astound. There was never any real understanding, amongst the political elites at least, about the implications for a very small economy of joining a monetary union. This was subsequently played out to devastating effect as respective governments pursued a fiscal policy that was totally inappropriate for an economy that was enduring a totally inappropriate monetary policy. The result was a total implosion of the economy and we are still struggling to pick up the pieces.

This week we had a couple of MEPs and others expressing disquiet at the changes to the ECB voting structure that will come into force next January when Lithuania becomes the 19th country to join the system. Ireland will lose some of its influence around the ECB table, or so the argument goes. The issue of course is that this was inevitable since the early days of the artificial monetary construct, but of course the bigger question is if Ireland ever had any real influence around the ECB table in the first place.

Under the rotation system, the member countries will be divided into groups according to the size of their economies and their financial systems. The governors of the five largest countries –  Germany, France, Italy, Spain and the Netherlands – will share 4 voting rights between them. the other 14, including Ireland, will share 11 voting rights. The governors of the member central banks will subsequently take turns using the voting rights on a monthly basis.

The objective is to ensure that the decision making process does not become too unwieldy, which does make a lot of sense. All members of the governing Council will attend each meeting and will be able to contribute, but not all will be able to vote every month. The six-member executive Board will have permanent votes.

To suggest that this change to a rotation system is akin to the Irish government ‘sleepwalking’  into the loss of voting rights is total baloney. While the smaller countries will loss disproportionate voting rights, it has always been the case that the larger countries basically dictated policy. It would be extremely naive to believe that the ECB ever set interest rates to suit a tiny country such as Ireland regardless of its cyclical economic situation. Policy has to be set to suit the larger economies. That is the reality of a monetary union and it is up to the smaller countries who may end up with an inappropriate level of interest rates to use the policies that they still have some control over to guide their economies. A number of countries, most notably Ireland, blatantly failed to do that from 1999 onwards. There is an old saying that ‘if one enlists, then one has to march’. There is no point in crying over spilt milk now.

It would be instructive for those who are criticising the imminent move to a rotation system at the ECB to look at what happens in the US with the  Federal Reserve. The Federal reserve system consists of 12 regional Federal Reserve Banks, and a permanent Board of Governors in Washington DC. Within the Federal Reserve the Federal Open Market Committee (FOMC) sets interest rate policy for the 50 states of the US. The FOMC is made of a Board of Governors consisting of seven members, who hold permanent voting rights; the president of the Federal Reserve Bank of New York who has a permanent vote; and 4 rotating regional Fed presidents. the presidents in Chicago and Cleveland vote every second year , and the presidents of the other 9 Feds vote every third year. This system of rotation is deemed flexible enough to deal with the task of setting interest rates for such a large and diversified economic block.

Based on how the US system works, it is hard to see what some of our MEPs are complaining about. Perhaps it is just a case of making some noise to remind the electorate at home that they actually exist.

Within the EMU structure, Ireland is a bit player without any real clout; a fact that should be apparent from our inability to negotiate any sort of deal on our re-capitalised banks. It is only going to get worse. As the euro area continues to expand, further dilution will occur. There’s not a lot we can do about it.




In relative terms, the Government is being inundated with good news on the economic and financial front at the moment. Most economic indicators in recent months have been moving in the right direction, and the news from the two main banks for the first half of the year has been more positive than we have seen for quite some time. Given that we are now well into the second half of the electoral cycle this does represent good news for the parties of government, and provided the recent trends are maintained or built upon over the remaining lifetime of the government, there might just be a relatively positive backdrop as they face into what could be a very politically tricky plebiscite.

What the government does or does not do in the remaining budgets could play a key role in influencing voter choices. Taxpayers have obviously taken a serious battering over the past six years, and the payment of the full-year property tax is hurting badly this year. At the moment we are being treated to a very damaging debate about the likely burden of the water charge next year. The sort of speculation and uncertainty that abounds at the moment in relation to the water charge is very destabilising as it is fostering fear and undermining confidence. There is nothing as dangerous as uncertainty, and the Minister with responsibility needs to create certainty as quickly as possible. At least if people have a clear idea of what the cost is likely to be, then they can plan with some level of certainty.

In terms of additional budgetary changes that might be implemented over the likely remaining two budgets of this government, the pressure is clearly starting to ease. Notwithstanding the fact that we are still borrowing too much as a country and that the level of outstanding debt is dangerously high, the public finances are gradually moving into a better place.

The Exchequer returns earlier this week showed that an Exchequer deficit of €5.18 billion was delivered in the first seven months of the year. This is €25 million higher than the equivalent period last year. However, last year’s figure included the proceeds of the sale of Irish Life and Bank of Ireland Contingent Capital Notes. When these non-recurring revenue items are excluded, the underlying deficit this year is almost €2.3 billion lower than the same period last year. Tax revenues are running €548 million ahead of expectations, and are 6.4 per cent up on last year. The three biggest revenue areas are performing very strongly. Income Tax receipts are 7.6 per cent ahead of last year and €54 million ahead of expectations; Excise Duties are 5.6 per cent ahead of last year and €132 million ahead of target; and VAT receipts are running 7.2 per cent higher than last year and €242 million ahead of target. These items are reflecting the improvement in the labour market and stronger consumer spending, particularly on new cars. It just goes to prove that economic growth is good for the public finances.

On the expenditure front, the Government is also maintaining tight control. Net voted expenditure is €172 million lower than last year and is €73 million lower than targeted. The current expenditure component is just €24 million higher than expected, while the capital expenditure component is running €97 million lower than expected.

This all suggests that the government remains well on track to improving upon the Exchequer borrowing target of €9.6 billion for the full year, and a General Government Deficit equivalent to 4.8 per cent of GDP. Granted, there is still five months left in the year with the biggest revenue collection month included, but based on current trends it is certainly possible that the deficit could come in up to a billion euro lower than expected and the deficit could hit 4.3 per cent of GDP.

Should it so desire, this would give the government scope to deliver a total budget adjustment of less than € 1 billion euro in October, which would necessitate marginal changes once the water charge receipts are taken into account. I believe it would be pre-mature for government to contemplate a tax cutting budget. That should be left for Budget 2016, which will likely be the final one before the general election. Assuming the government survives its full term, a relatively generous budget in October 2015 would be likely to give maximum political advantage to the parties of government.


This Article appeared in the Irish Examiner August 1st 2014

The key to Ireland’s future is to build a sustainable diversified economic model, and not end up putting most of our eggs in one basket, as we did in the not too distant past. Sectors such as agri-food, tourism, fisheries, indigenous medical devises and IT companies, and the arts can all play a significant role in Ireland’s future if properly managed. The sector I have ignored thus far is the foreign owned sector. It currently plays a key role in the economy and hopefully will continue to do so.

The facts about foreign direct investment in Ireland are very impressive. At the end of 2013, the IDA had over 1,100 client companies in Ireland, directly employing 161,112 people. The IDA has also taken responsibility for 55 companies in the Shannon region, bringing total direct employment up to 166,184. This is equivalent to more than 8.7 per cent of total employment in the economy. Of course those companies buy goods and services in the local economy and so are directly responsible for many more indirect jobs. The IDA estimates that for every 1 job in a multi-national company, another 0.7 of a job is supported elsewhere in the local economy. This phenomenon was highlighted in very stark fashion in Limerick a few years back when Dell re-structured its operations, with very negative consequences for haulage companies and the like who were heavily dependent on the company for its business. Of course retail and hospitality businesses are also heavily dependent on a large employer in an area. Based on the IDA’s employment multiplier, another 116,000 jobs are supported by IDA client companies, bringing total direct and indirect employment up to over 282,000 jobs, or almost 15 per cent of total employment in the economy. This is very significant and needs to be protected and nurtured to the greatest extent possible.

In the first six months of this year, over 100 investments were secured by the IDA. This represents an increase of over 40 per cent on the first half of last year. Over 40 per cent of the investments secured are from companies investing here for the first time, with the remainder coming from existing companies. It is estimated that those investments will lead to more than 8,000 extra direct jobs in the economy.

Some observers have a tendency to denigrate the role of multi-nationals in the economy, based on the amount of profits they repatriate back to the home country. They do repatriate profits, but an assessment of what they contribute in terms of direct and employment; payroll taxes; corporation taxes; non-wage expenditure in the local economy; and work practices is very worthwhile. Multi-nationals represent a very significant and valuable part of Ireland’s economy, and if for some reason, the positive investment trends of recent years were to be reversed, Ireland would be in a very dark place.

For multi-national investment in Ireland, the biggest threat is posed by the issue of corporation tax. The OECD is currently undertaking a Base Erosion and Profit Shifting (BEPS) exercise to see exactly how companies pay and avoid tax. Amongst others, Ireland is a key focus of attention, given the whole debate about effective tax rates and various taxation practices that are very difficult to understand. The OECD’s task is not an easy one, but at the end of the whole process it is likely that there will be a much greater focus on ensuring that tax is paid in the jurisdiction where the economic activity occurs. That is only fair, but it will not work to Ireland’s advantage. How much damage might be done to Ireland is anybody’s guess at this juncture because the issues involved are very difficult to comprehend, not least by the OECD. Apparently the Revenue Commission and Department of Finance are inputting strongly to the whole exercise.

The message for Ireland seems clear to me – it would not be sensible to build our FDI model on a continuation of the current taxation system. It will be eroded to some extent and one way or the other, Ireland’s situation will be less advantageous than it is at the moment. It is really just a question of degree. Consequently, we must ensure that other key attributes for attracting investment are nurtured. These attributes include the quality of the education system and the labour force it produces; physical and IT infrastructure; suitable high-quality commercial accommodation; the quality of public services such as health and education; and the personal tax burden. At a general level we need to be as open and pro-business as possible, and easy legitimate access to those in power should be preserved.

Ireland is still punching way above its weight in terms of attracting FDI, but inevitably we will have to run faster to stand still in the future.


This article appeared in the Sunday Business Post August 3rd 2014

In recent days somebody whose views I deeply respect suggested to me that official data releases and general popular discourse are not fully capturing and reflecting the magnitude of the real upturn in the fortunes of the economy. This view resonates with my sense of what is going on around the country. Whatever about official economic data releases which I believe, have been very positive in recent months, many businesses I deal with and speak to have been suggesting to me in recent times that there is a very noticeable improvement in conditions. Granted, this view tends to be more prevalent in the greater Dublin area than elsewhere, and is very relative, given the low base from which many businesses are now operating.  Be that as it may, there is an inevitability about recovery starting in the capital city and its environs, and  it is very reassuring that the precipitous decline in economy activity from 2008 onwards has stabilised over the past couple of years and there is now a very real recovery starting to build. The perennial pessimists and sceptics, and those who advised us to follow the Argentinian route may find this difficult to stomach, but the recent evidence is pretty compelling.

Despite the collapse in our banking system and its’ still pretty dysfunctional characteristics, the results from our two biggest banks over the past week have been relatively positive.

In the first half of this year AIB returned to profit for the first time in six years. It delivered a pre-tax profit of €437 million, which was well ahead of any analyst forecasts that I am aware of. The bad debt provisioning has been reduced considerably; operating expenses continue to fall; and total income rose by 36 per cent. Furthermore, its Chief Executive David Duffy has reassured the taxpayers of   Ireland that his bank will return all bailout funding of €20.8 billion received from the state since 2009. For a bank that is 99.8 per cent owned by the state, this is good news. Meanwhile over at Bank of Ireland, a first-half pre-tax profit of €399 million was announced.

This week’s news from the banks is unambiguously positive. Whatever we may think about banks and bankers, it is an irrefutable fact that for an economy to function properly, its banking system must be functioning properly. The role of a bank is primarily to act as a trustworthy intermediary to attract deposits and channel credit into the real economy. Since 2008, the Irish banks have not been meeting these criteria, but with a return to profitability, this looks set to change over the next couple of years. A functioning banking system will help accelerate the return to a properly functioning economy.

On the real economic data front, the news is also generally positive.

Earlier in July, national accounts data for the first quarter showed that GDP expanded by 2.7 per cent during the quarter, and was 4.1 per cent higher than the same quarter in 2013. Real GNP increased by 0.5 per cent during the quarter and was 3.1 per cent higher than the first quarter of 2013. This represented a very positive start to the year, and the good news is that the recovery has subsequently gathered pace.

Consumer confidence is at more than seven-year highs, but consumer spending is also gradually gaining traction. In the first six months of the year the value of retail sales was 4.4 per cent higher than the same period in 2013, and the volume of sales increased by 6.5 per cent.  However, when the motor trade is excluded, the retail sales performance was less strong, although more vibrant than in previous months. Excluding cars the value of retail sales increased by 1.5 per cent and the volume of sales increased by 3.4 per cent. We know that the number of new cars registered was 23.4 per cent higher than the first half of 2013. Indeed after 9 days of July, car sales for the year to date surpassed total sales for 2013.

On the export front, the news is also positive. In the first 5 months the value of merchandise exports was 0.3 per cent higher than last year.  Exports of Chemicals & Related Products declined by just 1 per cent (the patent issue), but exports of Food & Live Animals increased by 10.7 per cent. The volume of manufacturing output is 21.8 per cent higher than last year. Irish industry is clearly moving again.


The labour market also continues to improve. In July, the number of people signing on the live register was 37,461 lower than a year earlier and has fallen by 55,800 over the past two years. Most recruitment consultants will tell you that there is a marked pick-up in demand for labour. The IDA also continues to deliver.  In the first six months of this year, over 100 investments were secured, which represents an increase of over 40 per cent on the first half of last year. Over 40 per cent of the investments secured are from companies investing here for the first time, with the remainder coming from existing companies. It is estimated that those investments will lead to more than 8,000 extra direct jobs in the economy.

The final piece of the jigsaw is in the housing market. According to the CSO, national average property prices have increased by 12.5 per cent in the year to June and are now 13.9 per cent off the low point seen in March 2013; Dublin prices have increased by 23.9 per cent over the past year and are now 30.2 per cent off the low point in August 2012; and Outside of Dublin, property prices have increased by 3.4 and are now 5.6 per cent off the low point in March 2013. While this strong pick up in house prices will not please all, it does help remove thousands from a negative equity situation and does indicate a greater level of confidence out there.


All in all, I find the evidence of economic recovery very compelling, and hopefully it should continue to build from here. This is not to suggest that it will be plain sailing. It most definitely will not. There are still many obstacles to overcome, including the continued pressure on discretionary incomes; public and private debt; credit availability; housing market issues; and the fragile nature of the banking system. However, economic growth will make all of these problems more manageable, and it is very clear that this is starting to happen.  Hopefully, Michael Noonan will deliver a modest budget correction in October, and this should reinforce the more positive vibes in the economy and in business.


This article appeared in Irish Examiner July 11th

Nobody but nobody can possibly argue against the thesis that the Irish economy badly needs as much stimulus, consumer spending and employment support and creation as possible. This is particularly true in the area that surrounds Croke Park, which is a pretty deprived inner-city area that badly needs as much economic activity as possible. Consequently, it does seem strange that some residents in the area, with the support of Dublin City Council, are prepared to give their two fingers to five concerts that would have accommodated 400,000 visitors over a five-day period. If one assumes that on average each concert attendee engaged in additional expenditure of €100 per head, then these concerts would have given rise to expenditure of €40 million in Dublin and in the environs of Croke Park that in the absence of the concerts would not have occurred.


The decision to prevent this from happening has deprived Dublin of a massive injection of expenditure, particularly as a significant part of the expenditure would have come from outside the state.  At a recent Bob Dylan concert in Dublin I was struck by the number of overseas tourists, including Japanese, who attended it. This should not have surprised me as I have in the past travelled overseas to see acts such as the Rolling Stones and Bob Dylan. The reality is that events such as concerts and sporting events have become a key part of the global tourism offering. Another reality is that those who attend a concert or a sporting event from overseas will normally hang around for a few days and make a bit of a holiday out of it.


Who exactly is to blame for the fiasco is really hard to know. Presumably the blame has to be apportioned to the GAA, the Concert Promoter, the Gareth Brooks organisation, Dublin City Council and last but not least the residents of the area around Croke Park. There is little point in playing the blame game however. The fact is that a major economic opportunity would appear to have been missed and many people will be left worse off as a result, unless sanity prevails.


I can sympathise to some extent with the residents of the Croke Park area.  I live and work just beside a primary school and three times a day, there is a half hour period when the whole neighbourhood becomes chocker block and getting in and out of my house becomes a logistical nightmare. Women have been known to park their 4x4s across my entrance and parking on double yellow lines is a right, which the forces of law and order choose to ignore. Does this give me the right to try to prevent those children from attending school? I don’t think so, and I don’t thing that I would succeed in taking out a court injunction preventing the school from opening. In any event, when I bought the house, I knew exactly what it was beside. Tough luck!


In these very deprived times, accepting short-term inconvenience for the greater good is a price worth paying. The economic impact of the concerts and the utility that 400,000 people would derive from attending, have got to be important considerations.


This debacle does not exactly enhance Ireland’s aspiration to becoming the best small country in the world in which to do business, putting it mildly.  However, we now have quite a track record in this country of allowing small groups of people acting in a manner that is not in the interests of the greater good. We have the examples of the disruption caused in the Corrib Gas Field in Mayo; the marches against wind farms around the country; the opposition to oil exploration in Dun Laoghaire; the attempts to prevent workers from installing water meters in certain areas; and of course the attempts by some farmers in Waterford to prevent the development of the Deise greenway. The list goes on and on, but the net results are the same.


The spirit of nimbyism is alive and well in this country. In the case of wind farms and the like, the impact on the lives of opponents is semi-permanent but in the case of the Croke park concerts, it is just a fleeting inconvenience that will be soon forgotten. Sanity should be allowed prevail in such circumstances.


This article appeared in Businesspost.ie July 17th 2014


By Jim Power

Most sensible people would recognise that a functioning economy needs a functioning property and construction sector. After a dramatic collapse since 2008, Ireland’s property and construction sector has been decimated and although slightly better than in recent times, it is still in a very perilous state. Consequently, it is imperative that measures are taken to re-build a sector that has been decimated and stripped of a vital skills base. The government launched its latest blueprint for the sector in recent weeks, titled Construction 2020. This report contains 75 action points for the sector, but underlying it all is a clear recognition that it is essential to re-build the sector as quickly as possible.

Action point No. 51 recommends that consideration be given to the concept of a universal mortgage insurance scheme, which would allow banks share the risk of mortgage lending, either with the public sector or with private insurance companies. The key aim of the proposal would be to increase bank lending in general or increase lending to specific target groups. However, it is essential that if demand is to be given a boost, there must be sufficient supply to meet that demand. If not, any demand-side measures would just lead to undesirable house price inflation.

The Department of Finance is currently finalising its thoughts on the topic of universal mortgage insurance. It remains to be seen what it will advise the Government, but there is reasonably compelling international evidence that it has a key role to play in a functioning mortgage market. Canada is a good example.

Mortgage lenders here in Ireland are under significant pressure to re-build profitability, reduce the size of the balance sheet and hold adequate levels of prudential capital. High LTV mortgages are in theory more risky than low LTV mortgages, and so they may require higher capital provisioning or may creation the perception of a more risky loan book, which could influence the ability of banks to raise capital. It is in this context that mortgage insurance could play a significant role.

At the moment there is some evidence that worthy borrowers with strong repayment capacity based on actual and potential earnings are having difficulty raising a deposit of sufficient size to bridge the gap between the mortgage they are being offered and the price of the house they want to purchase. However, there is not a strong incentive for lenders to engage in such high LTV lending, so some aspiring home owners may be prevented from getting on the property ladder.

Mortgage insurance could play a role here. Mortgage Insurance is a risk mitigation product that is used to protect mortgage lenders (originators, and/or underwriters) by transferring mortgage risk, and notably tail risk, from lenders to insurers.

The creation of a universal mortgage insurance model would impose a mandatory requirement for all lenders providing high LTV mortgages to put mortgage insurance in place. This would oblige the financial institutions to insure the portion of the high LTV mortgage above a certain level, such as 75 per cent. This would mean that the financial institution would not have to hold expensive capital and thereby would be in a position to offer lower interest rates to borrowers over the lifetime of the mortgage.

Under such a model, the insurer would have an external role in assessing the mortgage transaction, thereby creating better oversight; lenders would not have to hold expensive prudential capital and could offer lower interest costs; higher lending standards would be enforced through the higher level of oversight; the solvency of the financial system would be helped through greater risk diversification; and most importantly first-time buyers in particular would be helped on to the housing ladder, which is important from a social cohesion perspective.

It would not make sense for the State to guarantee any component of the mortgage as this would just serve to increase contingent liabilities on the banks’ balance sheet. This should be left to the private sector through a mortgage insurance model. There are arguments for state intervention in the market in order to help that who cannot get housing, but not in guaranteeing lending where the private sector is already prepared to do so.

It would not be prudent to introduce mandatory mortgage insurance for first-time buyers only who are buying a new house. The reality is that not all first-time buyers want to buy a new house. By concentrating only on first-time buyers, important segments of the market would be ignored. The mortgage insurance model should ideally be applied to all high LTV lending. This more holistic approach would help get the overall market functioning more efficiently and more effectively.

Arguably in mortgage insurance had been in place over the past decade, mortgage lending would have been more prudent and the dramatic losses in the financial sector might have been avoided. However, mortgage insurance is not a panacea for all ills. Rather, it should be part of a mortgage model that is characterised by sustainable debt service coverage ratios, effectively reviewed at regular intervals of time; appropriate LTV ratios combined with a prudent approach to property appraisals; prudent loan to income ratios; effective verification of the borrower’s underlying income capacity; comprehensive file documentation of all loan originations kept over time; and effective collateral management and sound appraisal standards.

Rebuilding a functioning property, construction and mortgage sector would pay huge dividends in terms of economic activity, employment, labour market mobility, financial stability & sustainability, and social cohesion.



This article appeared in Irish Examiner July 18th 2014


By Jim Power


Ireland’s export statistics have become very volatile in recent times. The patent issue has had a dramatic impact on the value of Chemical & Pharmaceutical exports over the past couple of years and from month to month one never knows what the number is going to be like. This issue will eventually work its way through the system and when it does it will become very apparent that the Irish export model is purring very smoothly despite serious issues in some of our main export markets, particularly in the Euro Zone.


Last year the total value of exports out of the country reached 184 billion, which represented growth of just 0.9 per cent on 2012 levels. Merchandise exports, or physical stuff we sell, declined by 5.4 per cent, while service exports expanded by 7.9 per cent. The sharp decline in merchandise sales was primarily due to the patent issue, but its real economic impact in terms of important variables such as employment was pretty modest, because the business models of the affected companies had been adjusted in advance and new investments and new business activities were developed. Other export sectors such as food did very well, expanding by over 10 per cent.


One of the notable features of Ireland’s export structure in recent years has been the growth in the importance of service exports. Last year these exports accounted for just over 50 per cent of the total. It is not particularly easy to get a real handle on what is happening on the service side. Incoming tourists to the country is the easy bit to understand. Over 6,700 overseas tourists visited Ireland last year, representing growth of 6.7 per cent on the previous year. This activity was valued at €3.4 billion. Other service exports include royalties and licenses, insurance, financial services, computer services and other business services. Many of these activities are focused on IFSC type companies and are really difficult to interpret and evaluate their real economic contribution, but we are assured they are important and employ a lot of workers.


Personally I prefer to focus in on tourism and the exports of physical goods. They are more tangible and their real, as distinct from their accounting value is easier to evaluate.


Earlier this week the CSO released the merchandise trade numbers for May. They were pretty good. During the month we sold €7.8 billion in goods to overseas customers, which was more than 9 per cent higher than the same month last year. Interestingly, the value of exports from the Chemical & Pharmaceutical sector was almost 12 per cent higher than May of last year. This is reassuring, and is particularly good news for the cluster based around the Cork area. Exports of Food & Live Animals expanded by 7.9 per cent.


For the first five months of the year the value of exports at just over €36 billion, was 0.3 per cent higher than the same period last year. Chemicals & Related Products were 1 per cent lower than last year; Machinery & Transport Equipment, which includes output from the IT sector declined by 10.2 per cent; but Food & Live Animals expanded by 10.7 per cent. From a geographic perspective the Euro Zone is the biggest market and accounted for 35.4 per cent of total exports in the first five months; the US accounted for over 23 per cent; and the UK accounted for just under 15 per cent.


All in all, Ireland’s export model is still functioning very well, but there are certain strains and structural changes occurring that will have to be monitored and managed very carefully. It will be vital to maintain cost competitiveness in the face of a recovery in the labour market in particular. It would be unwise to allow the economic recovery to erode cost competitiveness, but all other costs of doing business will also have to be managed very carefully. The multi-national sector will remain a major part of the export model, as will the large food companies such as. Dawn Meats, Glanbia and Kerry. However, a major challenge will be to continue to strive to build up the export capability of the smaller indigenous companies. This is not an easy task, but the reality is that it would prove very difficult to grow an indigenous company to a large scale by focusing on the small domestic market. Export growth will have to be the key focus for those companies who want to get big.

Growth Picture Getting Better


This article appeared in the Examiner July 4th 2014

Following the disastrous election results in May, the Government is now under considerable pressure with less than two years to go to a general election. The most immediate issue to be faced up to is the budget this October and whether an adjustment of €2 billion will be required or not. The next big issue to be then faced is seeking to ensure that the general economy and particularly the labour market are in a better place in the months leading up to the election. These are difficult questions to answer because the one thing we should have learned from recent experience is that the economic future is nigh on impossible to predict with any degree of confidence, and is always potentially vulnerable to shocks that we not yet have thought about.

Be that as it may, economic data releases over the past week will provide the beleaguered government with hope. The labour market is continuing to gradually move in the right direction; the public finances are better than expected; and the growth numbers for the first quarter of the year are certainly suggesting an improving picture.

Yesterday the Central Statistics Office (CSO) published revised historical data on the economy. This is normal because as the CSO gathers additional information from different sources on the millions of transactions that occur in the economy over the course of a quarter or a year, it will have to revise previous estimates. However, this time the CSO in line with new international standards, has sought to measure illicit activities such as drugs and prostitution, and also to change the manner in which it accounts for expenditure carried out by companies on Research & Development (R&D).

One of the many criticisms of GDP as a real measure of what is going on in the economy is that is does not capture the informal or ‘black’ economy, as it has traditionally been called. Whatever we may think about activities such as drug dealing and prostitution, they do represent economic transactions and should be measured for economic activity purposes. By definition, this is very hard to do, but the CSO yesterday sought to do so and this has added to gross domestic product (GDP), albeit in a modest fashion. However, the change to the treatment of R&D is more significant. Previously it was regarded as a business expense and formed part of intermediate consumption in the economy and did not really constitute GDP. Now based on international best practice, such spending is regarded as business investment, and hence contributes directly to GDP. In 2013 for example, illegal economic activities added 0.72 per cent to GDP, but the capitalisation of R&D added 4.1 per cent. As a consequence of these changes and other revisions, GDP actually expanded by 0.2 per cent last rather, rather than contracting by 0.3 per cent as had been previously suggested.

This is now of historical interest in the main, but the data for the first three months of this year are of more immediate interest. The good news is that all of the components of economic activity showed decent year-on-year growth in the first quarter. In real terms, consumer expenditure increased by 0.2 per cent, investment increased by 2.9 per cent; exports expanded by a strong 7.4 per cent; and imports increased by 5.9 per cent. This resulted in an increase of 4.1 per cent in GDP and 3.1 per cent in the more important measure of economic activity, gross national product (GNP).

Obviously these data are provisional and are subject to later revision, and quarterly data do tend to be very volatile from quarter to quarter, but the clear picture emerging is that the recovery which commenced in a very gradual and modest fashion during 2013, is now gathering some momentum.

The upward revision to historical GDP and the stronger than expected growth in the first quarter, when combined with the public finances for the first half of the year, are suggesting  that Michael Noonan could actually bring in borrowing close to 4 per cent of GDP rather than 4.8 per cent this year. This in turn would suggest that a budget adjustment of less than €1 billion would be more than adequate to hit a borrowing target of less than 3 per cent of GDP in 2015. It is still too early to be too definitive about this, but the omens are getting better. How to translate this into political popularity is a different matter, however. Who would be in politics?

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