A recent survey found that three-quarters of the Irish workforce believe that the country is heading for recession, but economists and other financial soothsayers aren’t so sure. The dire predictions of 2022 have given way to cautious optimism that Ireland will narrowly avoid a recession. The very real cost-of-living crisis fuelled by massive inflation and geopolitical turmoil, however, means that many of us are tightening our belts and hunkering down as we wait to see what 2023 brings in terms of the economy.
Kieran McQuinn, professor of economics at the Economic and Social Research Institute (ESRI), says the institute believes the Irish economy remains in a strong position and looks like it will avoid a recession.
“Our basic position is that the economy has been growing very strongly over the last number of years and final figures for 2022 will again show impressive growth, despite the backdrop of geopolitical turmoil and inflationary pressures,” says McQuinn.
Inflation
And while this stellar growth will moderate significantly during 2023, he admits that this is a “conservative” forecast that already looks like it will not be borne out as inflation begins to stabilise.
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“That reflects inflationary pressures and ongoing uncertainty regarding the war in Ukraine and high energy costs. The ESRI was quite pessimistic on inflation for this year, predicting it would stay at over 7 per cent but that’s quite high and the latest inflation figures show it already beginning to fall. This year will see the worst of the inflationary pressures so a recession is not likely to happen if it doesn’t happen this year.”
The measure of modified domestic demand strips out the multinational factors and gives a more realistic picture of the domestic economy, McQuinn explains. “We still expect that to grow 2 per cent and expect GDP to grow 3 per cent. So these growth rates are down from the last couple of years but still positive. And of course, if the inflation risk improves more than people think it will, then it could be that the economy would grow even faster and stronger than we think.”
McQuinn acknowledges that, in real terms, people’s incomes are still falling as wage growth struggles to keep pace with inflation. But he stresses the distinction between the current situation and that of the aftermath of the 2008 financial crisis, where we saw mass redundancies and thousands of businesses shuttered.
“The labour market is still tight with an historically low employment rate and this is predicted to fall even further,” he says, noting that this is prevailing, even with significant job losses in the tech sector. “We believe wages will begin to grow towards the end of the year too.”
Finances
Nonetheless, the national mood is one of belt-tightening as we await brighter days, says Michelle O’Hara, national spokesperson for Mabs, the Money Advice and Budgeting Service. Regardless of whether a recession is coming, it is always a good idea to take stock of your finances once in a while, taking a closer look at outgoings and attempting to consolidate or remove any debt.
“Looking at the here and now, we are trying to give good advice and good direction to people,” she says. “We are all in challenging positions and notwithstanding the easing of inflation somewhat, we still are dealing with cost-of-living increases — that’s the reality and it’s not going anywhere soon.”
O’Hara says that January is typically a busy month for MABS as people try to tackle Christmas overspending or begin a financial spring clean.
“The first thing we do is ask people to gather all their financial information so that they have a full financial picture,” she explains. “This means categorising day-to-day spending, as well as bills, which also includes your debts.” She suggests that people closely examine payslips or welfare payments, as well as bank statements. “People have direct debits and standing orders that they set up months or even years ago, and often have forgotten they were still paying it. You need to understand what you have got coming in and what you’ve got going out.”
Even the best household managers don’t tend to set a weekly or monthly budget for themselves, she says. One top tip is that when people are looking at their monthly outgoings, they often forget to account for yearly bills — car tax or house insurance, for example. O’Hara suggests dividing these by 12 and accounting for them in the monthly budget. Mabs has a handy spending diary that can be downloaded from its website mabs.ie that can help people track their spending for a week or two.