Ireland’s rapid economic bounce-back from its deep recession has surprised some. What has driven the recovery and can it be sustained?
Ireland loaded up on cheap debt in the run-up to the economic crisis, leading to the catastrophic financial meltdown, which turned it into one of the most indebted countries in the developed world.
After seven years of austerity the economy is bouncing back, but is it sustainable?
Some €20bn (£14.3bn) was slashed from the Irish government’s budget through budget cuts, which politicians will point to as the reason for the recovery. This was certainly necessary, but it doesn’t tell the full story.
The high number of multinational companies located in the country because of its business-friendly economy and young, educated workforce meant Ireland managed to sustain net exports during the crisis.
These exports have been boosted in the past 12 months due to the weakness of the euro. This is a problem for many eurozone countries, but because Ireland exports mostly outside of the euro (in sterling and dollars) it has been a boon.
Personal spending has returned in the past year, with 2.1% growth recorded in the latest figures. This is partly owing to job growth in sectors such as tourism, the weak euro, and agriculture, after a change in EU milk quotas.
The continued recovery will depend on increased stability, which will come from increased investment. Kevin Nowlan, chief executive of WK Nowlan REIT Management, the investment manager for Hibernia REIT, says: “The Irish market will become more internationalised. We have a wider base and a more limited amount of debt now.”
GDP in Ireland grew by 4.8% in 2014, exports of goods and services grew by 12.6% and consumer spending rose by 1.1%.The growth in these sectors supports the view that the recovery is becoming more broadly based and therefore more stable.
Despite this, there are vulnerabilities. Craig Wright, European real estate analyst at Standard Life Investments, says: “Ireland is susceptible to weak sentiment and a return to risk-off investment environments. Risk factors such as Russian aggression, Chinese slowdown, ‘Grexit’ and a UK referendum on EU membership all offer potential external interventions for the Irish economic recovery.”
However, the figures provide hope for a long-term recovery, and sentiment on the ground is optimistic.
John McCarthy, research director at Savills in Dublin, says: “We’ve come out of a devastating recession but things are really improving. We are entering into an upward spiral.”
