MORE OPTIMISTIC THAN PESSIMISTIC ABOUT IRELAND IN 2023 - BUT CAUTIOUS
This Article Appeared in Irish Examiner 28th November 2022
At a few recent events I have noticed a trend emerging that I have not seen since 2007. That is where the organisers of events are subtly suggesting that I not send the audience into a state of anxiety or depression. This change of mood is reflecting 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 in particular, but more generally from a significant deterioration in the overall cost of living.
I did learn some lessons from my personal experiences back in the dark days of 2007/2008. 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. Nobody can predict the future with any degree of accuracy in normal times, but this is particularly the case at a time like this when the military actions of a narcissistic maniac are threatening to do further untold damage to the global economy and more worryingly to civilisation. Anything seems possible as we move into 2023 and to me the biggest issue is trying to understand a possible off-ramp from the invasion of Ukraine for the evil Putin.
I do not profess to understand with any degree of precision how 2023 might unfold. However, it is essential that businesses and individuals recognise and 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 ‘cautious’ in my assessment.
Ireland has much working in its favour at the moment. 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.
While all of this is positive, it is of course important to recognise the headwinds that are building. Last week the Paris-based OECD published its latest prognostications for the global economy. It painted a sobering picture, highlighting the mounting challenges, which include pressurised confidence; the ongoing Ukraine war and its impact on energy and food; the tightening of interest rate policy around the world; and the particular pressures on emerging market economies. It is projecting global growth of just 2.2 per cent in 2023, down from 3.1 per cent this year. This global prognosis includes the strong possibility of recession in the US, EU and UK, the latter of which the OECD 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. Gross Domestic Product (GDP) is projected to expand by 3.8 per cent in 2023, down from 10.1 per cent this year. However, the more pertinent measure of indigenous economic activity, Modified Domestic Demand (MDD) is projected to expand by 0.9 per cent next year, on the back of growth of just 1.3 per cent in consumer spending.
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 a challenging first half. Against this background, I hope the Government has the sense to postpone the increase in the VAT rate from 9 per cent to 13.5 per cent, which is due to be implemented on March 1st. Such an increase would not make sense in the current environment of such intense uncertainty. Doing anything possible to support pressurised SMEs will be essential in 2023. Avoid doing damage has got to be the Government mantra.
Yes Deirdre. Essential. The Food Safety Authority should have a key role to play in the process.
Could you guys do something on the coverage of collateralized fund obligations in the FT (?CDOs mark 2?).