Thursday, August 18, 2011
Has Ireland's economy turned the corner?
More and more international observers are making positive comments about the Irish economy. At the end of July 2011 an article appeared in Reuters’ US edition under the heading “Billionaire Ross bets on v-shaped Irish recovery”. It was a report on the comments made by the man who has just invested €300 million of his own money, as part of an overall foreign injection of €1.1 billion, in Bank of Ireland. Wilbur Ross is quoted as saying that the deal was fueled by positive news from Ireland that indicates it is breaking away from “its troubled peers in southern Europe” and embarking on a solid recovery.
Then, on August 17th 2011, the Financial Times published an article from two economists, David Vines, professor of economics at Oxford University, and Max Watson, fellow of Wolfson College at Oxford, who is also a member of the Central Bank of Ireland Commission.
The academics argue that Ireland is swiftly restoring its competitive edge. We’re moving towards a sizeable current account surplus. Our public debt will peak at 110 per cent of GDP, which while large is not unmanageable (Belgium’s debt to GDP ratio was 98.6 % in 2010 and had been much higher than that for many years – since well before the latest recession).
The major challenge facing Ireland, according to the authors, is the situation with the banks. They claim that the corner has been turned here too, due to recapitalisation, a sharp division between core and non-core assets, and regular and rigorous stress tests. They might also have mentioned the new broom, no-nonsense Financial Regulator. The investment by Wilbur Ross and his consortium in Bank of Ireland, reported in the Reuters article mentioned at the outset, feeds nicely into this assessment.
Then there is the much vaunted cost of insuring Ireland’s debt, calculated by reference to the spread on credit default swaps (CDSs). While CDS spreads have fallen for all of the EU states, including countries that have been the focus of much comment such as Greece, Portugal and Spain, those for Ireland were the first in that group to show a marked decrease. No doubt these instruments will wax and wane as always but, in any event, Ireland does not have to re-enter the sovereign debt market until 2014 because of the bailout arrangement with the ECB and IMF.
The quiet man of the Irish economy, agriculture, has seen significant buoyancy over the last year as so-called "soft" commodities, which go into food production, have been subject to sharp rises on world markets. Tourism figures too are well up on previous years and this is despite the relative high value of the Euro against other currencies, most notably the US Dollar. Both of these developments are all the more welcome because they involve indigenous, some might say traditional, sectors of the economy.
All in all, this is a positive picture. It’s certainly not one to get complacent about, but satisfactory none the less, and hopefully just what is needed to encourage the redoubling of official efforts into the future to consolidate and build on what has been achieved.