The ‘R’ word has reared its ugly head, with the Central Bank warning of the potential that the Irish domestic economy could slip into a technical recession in the coming quarters as households and business struggle against soaring inflation.
A famous scene from the political drama The West Wing springs to mind, where a White House official dares to question if the US economy is headed into recession only to get a horrified reaction at his use of the word from senior adviser Josh Lyman.
“What should we call it?” the official asks only for Lyman to respond: “I don’t care. Call it a boat show or a beer garden or a bagel.”
He is told: “So if it is a bagel the Fed thinks it’s going to be a mild bagel.” In the case of the Central Bank warning – if Ireland does enter a period of recession – it looks like being a short one.
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In Joe Brennan’s report on its quarterly bulletin on our front page, the bank cut its 2023 forecast for modified domestic demand – a key gauge of the domestic economy – by almost half to 2.3 per cent as it raised its inflation outlook given financial markets are now pricing in an extended period of high gas prices.
It also lowered its 2024 projection marginally, to 3.3 per cent.
While the bank does not publish quarterly figures, its acting director of economics and statistics, Robert Kelly, told reporters in response to questions that “there is the potential” that the domestic economy could slip into a technical recession, which is defined as two consecutive quarters of contraction.
“We are going into a period now towards late 2022 when we’ll see quite a considerable slowdown in the economy. That will continue into 2023,” he said, adding that the economy should pick up towards the second half of next year.
The bank’s forecast that the domestic economy will grow by 6.4 per cent this year as a whole, some two percentage points more than previously predicted, is driven by an easing of Covid-19 restrictions earlier in the year and a surprise jump in business investment in the second quarter. Irish inflation is expected to peak at 8 per cent this year before easing to 6.3 per cent next year and 2.8 per cent in 2024, the bank said.
However short or technical, the mention of a recession will send jitters through the Irish body politic still scarred from the economic crash of 2008.
Tánaiste Leo Varadkar has spoken a number of times this year about the possibility that Ireland can avoid going into a recession caused by the energy crisis and war in Ukraine.
Responding to concerns – as far back as April – that soaring inflation could see European Union economies starting to contract he said he could not guarantee that Ireland would not be affected but said he, the Taoiseach and Minister for Finance were “determined... that we avoid going into recession as a consequence of the current crisis”.
He said: “That is possible, but it does mean doubling down on all the things that make Ireland successful economically.”
He said the country must continue to be attractive for jobs and a good place to do business and invest.
In July Mr Varadkar told The Irish Times that he was confident Ireland will avoid recession while admitting that a lot of people’s incomes will not rise as fast as the cost of living “and for them it will feel like a recession”.
He said an expansionary budget will help avoid recession and the Government’s €11 billion announcement last week – albeit with €6 billion set aside for a rainy day – can certainly be described as that.
There is growing concerns of a global recession. CNN have helpfully provided a listicle – “Five signs the world is headed for a recession” here.
So if Ireland does go into recession it will not be alone.
The Government will be hoping it will be quick and that enough has been done to protect households, business and employment from its worst effects.
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Playbook
The Seanad will be addressed by the Lord Speaker of Britain’s House of Lords, John McFall, at 12.45pm today as part of events marking the centenary of the Upper House.
The Dáil will kick off at 9.12am with topical issues followed by a debate on a Private Members’ motion on providing free and accessible public transport.
Leaders’ Questions is at noon.
Tánaiste Leo Varadkar will be before the committee on enterprise at 9.30am to provide an update on his department’s work in the first half of the year.
The health committee will examined the National Children’s Hospital project with members of its development board and the HSE, also at 9.30am.
Aer Lingus representatives will be at the transport committee at 1.30pm to face questions on recent flight booking and check in issues.
The full Dáil, Seanad and committee schedules can be found here, here and here.
