Economy facing double dip recession or jobless growth unless Government adopts jobs strategy

3rd September, 2010


On May 1st, 2003, George W Bush stood on the USS Abraham Lincoln, in front of a giant Mission Accomplished banner and declared the Iraq war had been won. The Government would be wise to learn from his mistakes as we prepare to see data that shows the economy returned to growth in the first half of the year.

The latest set of statistics suggests we are facing a worrying medium-term economic future. Let’s look at two key sets of statistics;

Firstly, retails sales. The CSO index shows that having grown in each month from February to June, the volume of retails sales fell back in July. What is more, the value of those sales had been falling for the last three months. Despite the somewhat encouraging start to the year, it now seems clear that Irish people have again stopped spending. This is borne out by the ESRI KBC consumer sentiment index as well. Although consumers have grown more confident than two years ago, the weakening of sentiment during the summer is a serious cause for concern.

The guarded optimism of the first and second quarters that the economy had turned the corner may have been misplaced, and any Government strategy based on such corner-turning should be jettisoned in the face of the facts.

Now let’s look at unemployment. Again, the evidence of economic recovery is not present. Unemployment is a shocking 30,000 higher than last it was last August. On a seasonally adjusted basis, this means the numbers on the dole have risen by a further 7%, on top of the doubling in the numbers in the 2008-2009 period. A quarter of the unemployed are in Dublin and a fifth of them are under 25. As IBEC pointed out this week, three quarters of those who joined the queues in August were women.

While these statistics are very worrying, perhaps the most dangerous statistic, because of the false sense of security it brings, is the growth in the economy as a whole as measured by GDP and GNP. CSO data released at the end of June showed positive first-quarter movement in GDP and only a marginal fall in GNP. Most economists have said that Ireland has now exited recession- and they are quite possibly right. The problem is that, despite this growth, people are not spending and jobs are not being created.

Everyone over the age of 30 in Ireland remembers the depressing years of the 1980s when unemployment soared, emigration peaked and the country was bankrupt. Many would be surprised to know that the Irish economy actually grew in every year of the 1980s except 1983. Recession? What recession?

The winter of 2010 will decide whether or not Ireland loses another decade- and another generation- because of poor economic management. If a double dip recession does not occur- and we all hope it does not- the Government must take on board the message from the retail sales and unemployment figures.

That means developing a jobs plan, not just a bank plan. That means getting people to spend more, not just getting the State to spend less. And above all, it means avoiding any grandiose statements about the return to economic growth, should it prove to be sustained. The mission is far from accomplished.