Jim Power: Why I’m more optimistic than pessimistic about Ireland’s prospects

At recent events, I’ve watched a new trend not seen since 2007. That is where the organisers subtly suggest I not send the audience into a state of anxiety or depression.

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The change of mood reflects the intense uncertainty and fear that many people are feeling about the future. The Ukraine war is rumbling on; the global economic outlook is riskier than we have seen for some time; interest rates are rising; the global technology sector is in a period of significant readjustment; and household real disposable incomes are under extreme pressure from escalating food and energy costs.

Generally, there is a significant deterioration in the cost of living.

I did learn some lessons back in the dark days of 2007 and 2008. The word therapist does not appear on my CV and there is nothing to be gained from sugar-coating the message, while recognising the fallibility of all economic forecasters.

Cautious optimism

Nobody can predict the future with any degree of accuracy in normal times, but this is particularly the case at a time when the military actions of a narcissistic maniac are threatening to do further untold damage to the global economy.

Anything seems possible as we move into 2023 and I do not profess to understand with any degree of precision how the new year might unfold. However, it is essential that businesses and individuals understand the potential risks and challenges that lie ahead for the Irish economy.

Personally, I am slightly more optimistic than pessimistic about Ireland’s prospects in 2023, but I would include the word ‘cautious’ in that assessment.

Ireland has much working in its favour: We still have a very strong labour market and most businesses I talk to are still struggling with recruitment and retention issues; the export performance remains very strong, with the chemical and pharma sector leading the way.

But the agri-food side of the economy is also performing strongly, thanks in no small part to the activities of Bord Bia, and the ongoing buoyancy of tax revenues is enabling Government to lend as much financial support as possible to the most vulnerable parts of the economy and society.

Sobering OECD forecast

While all of this is positive, it is of course important to recognise the headwinds. The Paris-based OECD last week published its latest prognostications for the global economy.

It painted a sobering picture, highlighting the mounting challenges, which include the clouds facing business and consumer confidence; the effect of the Ukraine war on energy and food prices; the tightening of interest rates around the world; and the particular pressures on emerging market economies. 

It is projecting the global economy will grow by just 2.2% in 2023, down from 3.1% this year.

Its global prognosis includes the strong possibility of recession in the US, EU, and the UK, for which it provides a very bleak assessment. The parting shot from the forecaster is that “the uncertainty about the outlook is high, and the risks have become more skewed to the downside and more acute”.

In relation to Ireland, the OECD is most concerned about the impact of falling real income on consumer spending. Nothing remotely surprising there. 

Irish GDP is projected to expand by 3.8% in 2023, down from over 10%, this year. However, modified domestic demand, the more pertinent measure of indigenous economic activity, is projected to expand by 0.9% next year, with consumer spending expected to grow by just 1.3%.

Ireland may avoid recession

I suspect that Ireland will avoid a technical GDP recession in 2023, but I fear that parts of the domestic economy that are dependent on discretionary consumer spending, such as hospitality, retail and personal services, could face challenges in the first six months.

Against this background, I hope the Government has the sense to postpone the increase in the Vat hospitality rate back up to 13.5%, which is due to be implemented on March 1. Such an increase would not make sense in the current economic environment facing such intense uncertainty.

Doing everything possible to support small firms will be essential.

Read More: Jim Power: Why I’m more optimistic than pessimistic about Ireland’s prospects

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