Growth is back in a big way and earlier this year, Ireland’s unemployment rate dropped below 10 per cent for the first time since the crash.
But the other day I pulled out an old set of figures from the Central Statistics Office. I wanted to remind myself of what was going on when unemployment figures were moving in the other direction, climbing across that 10 per cent threshold. As I would soon see, raw economic data from not long ago still has the power to startle.
The figures from early 2009, soon after the Lehman Brothers explosion and the State banking guarantee, reflect a profound worsening of conditions. Between the first quarter of 2008 and the same period one year later, the number of people working in the State fell by 158,500 – enough people to almost fill Croke Park twice over.
On average in that year, 3,000 people left work every week. The unemployment rate raced from 4.9 per cent right up to 10.2 per cent. At a time of ever-increasing turmoil, this was the direct human toll. There was worse to come.
Unemployment eventually peaked above 15 per cent.
This was but one painful dimension of the trauma we’ve been through, yet the atmosphere has changed. Although the economy is improving steadily, the disruption still seems recent. Many struggle still to overcome its legacy: think of mortgage arrears and the housing crisis. Yet the overwhelming sense of caution and anxiety has dissipated. We have come a long way.
The best part of a decade has elapsed since the credit crunch engulfed global banks in the summer of 2007. Right now, external conditions are benign. Growth is spurred by a weak euro, low interest rates, low price of oil and the European Central Bank’s belated bond-buying campaign.
Back then, everything that could go wrong did, and the international response was paltry.
There was the speed of it all, one sickening setback followed remorselessly by another. The grinding totality of distress gave the sense very early on that no family would be untouched.
Taxes were increased heavily and State expenditure was scaled back. Public and private sector pay was cut. As many as 26 per cent of firms took the blade to wages after the crash, according to Central Bank research, and 60 per cent froze pay.
This is to say nothing of huge job cuts, which hit the exchequer on the double by eroding tax and increasing the welfare bill.
At its most acute, the situation seemed to worsen daily. Self-reinforcing crises in the banks, the property market, the recession-struck real economy and the public finances amplified one other.
Two years after the guarantee, as money and luck finally ran out, the State reluctantly capitulated to external aid. The ultimate bill for rescuing the bedraggled banks climbed towards €64 billion, twice the total tax take in 2010.
As Fine Gael and Labour took power in 2011, retrenchment deepened and debts accumulated. A toxic Franco-German assault on the corporate tax regime was spurned.
The long sovereign debt crisis in the euro zone called into question the very viability of the single currency. Disaster was averted but the debacle, still unresolved, demonstrated just how difficult it is to co-ordinate the economic affairs of close to 20 countries.
At home there were further public pay cuts, more service cuts, pension raids, stealth taxes, property taxes and water charges. We saw it all and more. The final austerity budget, two years ago in October, brought total tax measures and spending cuts to €29 billion.
Recovery was a long time coming, but recent data suggests the economy picked up in 2013. In the end, the bailout worked. The national debt was well up, but the budget deficit was down.
The restoration of access to private debt markets ensured a smooth exit from the bailout programme at the end of that year, without the benefit of a precautionary credit line. This followed heated arrangements to scrap the Anglo Irish Bank promissory note scheme.
Yet there was rancour over a non-deal in Brussels on retrospective bank aid and the failure, earlier, to impose losses on senior bank bondholders.
For all the progress made, voters mauled Labour in local and European elections last year. It wasn’t a whole lot better for Fine Gael.
This is the backdrop to the present turnaround, which has intensified quite appreciably in the period since. The rate of economic growth in 2014 was 5.2 per cent, Europe’s fastest. A similar advance is now anticipated for 2015.
After falling so far so fast, however, the road back is still long and arduous. Any economic crash is measured out in shock and drama. The longer it goes on, the deeper the anger. Recovery, measured in increments, is a different story. It takes time.
For example, job creation takes a lot longer than the elimination of jobs. Some 41,300 people took up work in the Irish economy in the first quarter this year, compared with 2014. That strong expansion, with full-time work rising and long-term unemployment falling, was sufficient to bring the unemployment rate to 9.9 per cent from 12 per cent.
Take note, however, that this two percentage point drop contrasts with the five percentage point rise in 2008-2009.
An unemployment rate below 8.5 per cent is now forecast by the end of 2017. Even then, it is a long way back to pre-crash levels of around five per cent. Some 212,800 people were categorised as unemployed in the first quarter of this year. At the start of 2007, the number unemployed was 91,800.
It’s a similar story for recovery dividends at budget time. After crisis struck, tax increases and spending cuts were doled out by the billion. By contrast, tax cuts and spending increases are counted in millions.
The scope to undertake such measures reflects the narrowing of the gap between tax revenue and spending. This, in turn, is aided by the return of people to work, which increases tax returns and reduces welfare spending.
Every person who leaves the live register to take up employment saves the exchequer about €20,000 per year.
For many, however, the fruits of recovery are slow to trickle down. This is particularly so in the context of regional and age disparities on the employment front.
Dublin and its hinterland are advancing a lot faster than the rest of the country. The youth unemployment rate – at 21.5 per cent – is more than twice the overall rate.
Still, evidence points to a broadening of recovery. In the wake of the crash the domestic economy was pulled out of the horrors by strong export growth. Such activity has its source overseas.
A further factor here is the resilience of large multinational high-tech groups in Ireland, many of which continued to expand during the local turmoil. In this regard, Ireland’s recovery was greatly aided by deep trading ties with the US and Britain, which were faster to exit the crisis and resume growth than any of the major European economies.
While the latest IMF assessment predicts more gradual pick-up in the world economy than previously forecast, the fund still expects an acceleration of global growth this year and next.
This helps Ireland, not least because the fund sees strength in the US and increasing signs of recovery elsewhere in the euro zone.
As conditions in Ireland improved last year, analysts noted a return of what they term “domestic demand”. This is activity that originates within the State itself, be it because of increased spending by consumers, companies or the Government.
It is a result of increased employment, marginal pay increases in the private and public sectors, higher retail sales generally and the return of expenditure on big-ticket items such as cars and white goods. Just as negative trends multiply in a declining economy, positive movements tend to ripple outwards.
There are risks, of course, and many of them. High personal and national debt makes Ireland vulnerable to higher borrowing costs whenever the ECB starts to raise rates.
Any failure to settle the situation in Greece would prompt another bout of market turmoil if that country went back to the drachma. There is also the prospect of a British exit from the EU, which would present multiple challenges to Dublin.
More immediately, there is concern about the shortage of new homes, rising property and rent costs. There is disquiet, too, about the loss of competitiveness gains made when the economy was on its knees.
It’s been a quite long time since these old woes troubled us.
