EXPORTS ARE soaring, but the domestic economy remains at rock bottom. That was the message from a raft of economic indicators published this week. When taken together, new figures – on jobs, national income and foreign payments – prove that signs of a recovery in the first half of the year were cruelly illusory. They show, too, that the economy is feebler than it was previously believed to be.
But hope should not be abandoned. Export growth ranges from solid to spectacular in most sectors. As there is almost universal agreement that the future prosperity of this country depends on our trading successfully with the rest of the world, the week gave plenty of reason for optimism. On Thursday we learned that exports of good and services combined reached new peaks in the second quarter of 2010, up again from already-high levels in the first three months of the year.
Ireland’s astonishing success as an exporter of internationally traded services continues. Last year, for every $100 spent on such services by the planet’s 6.5 billion people, a vastly disproportionate $3 accrued to the 4.5 million residents of this country. This year that share looks set to become even more disproprtionate. In the second quarter of 2010 alone, a record €18.3 billion was earned from sales of services to foreigners. Yesterday, a separate set of figures showed that the strong performance of manufactured goods exports in the first half of the year continued into the second. In July alone almost €8 billion-worth of goods were shipped abroad. This is the highest monthly figure since the heady days of the Celtic tiger in 2002. Successes of this kind should not be forgotten at a time when national self-confidence has been so badly shaken.
There is no danger of forgetting our economy’s weaknesses, of which there were many reported during the week. Thursday brought news that the economy had contracted in the second quarter of the year, as measured by both GDP and GNP. Two days earlier statisticians had revealed that the numbers at work in the State fell yet again in the second quarter. There are, depressingly, more job losses to come.
The weaknesses of the domestic economy have numerous negative implications. One relates to the country’s capacity to contain its grave fiscal crisis. The National Treasury Management Agency sold long-term and short-term debt on Tuesday and Thursday respectively. But the cost of this borrowing continued its inexorable rise. Although there is no sign yet that investors will suddenly turn off the lending tap, trends in recent weeks are unsustainable. Borrowing at the interest rates currently being demanded by the markets is barely manageable. If they go much higher the position will tip towards unmanageablility.
Prof Patrick Honohan at the Central Bank and EU Economic and Monetary Affairs commissioner Olli Rehn both hinted broadly this week that the credibility of the Government’s plan to balance its books is being eroded. The probability that the forthcoming budget will be be even more severe than anticipated is rising.