DANCING KING AND QUEEN
DEIRDRE O’KANE AND TOMÁS O’LEARY TALK FAKE TAN AND CURSES
GOOD tidings at last.
It is a long time since there was a new year when the outlook was as good as it is for 2018. A very long time, if you count the warnings about a credit bubble that began to appear in 2005.
According to the pendulum theory of economics, there is a brief period when the pendulum is in the desirable middle; neither too far one way, nor too far the other. This looks like one of those moments.
It is also swinging upwards, with the external environment also the best for some years.
The warnings are more about over-heating than chill winds, but any such danger is at least 12 months away.
The US economy is in full recovery mode, making those who forecast a Trump recession look a bit foolish.
One conclusion that might be drawn is how little influence governments, whether bad or good, have on the economic cycle.
Or it may be that borrowing of the kind the Trump administration intends always provides a boost – at least for a time.
For different reasons, the eurozone economy is also delivering.
It may have grown by as much as 2.5pc this year and should do something similar in 2018. This is the best performance since 2011 and is being led by investment growth of over 4pc and more than €100bn of extra consumer spending.
Recovery took longer than it should have done, due to the difficulties of getting agreement on appropriate policies for the whole currency area.
Despite several initiatives since the crash, those difficulties will not go away. Euro members, especially smaller ones, need to be cautious all the time.
It is a hard lesson, but for the moment Ireland seems to have learnt it.
October’s Budget was certainly cautious, although it was hard to tell, given all the contradictory spin about fiscal space, better services, and people who get up in the morning.
In the end, the more useful annual analysis from the ESRI found that there were actually small losses for most households, as compared with a strictly neutral Budget.
This keeps the public finances in good shape. The Fiscal Advisory Council reckons it was the absolute minimum which should have been done, but even that is a big improvement on much past Irish budgetary policy.
The response to the harsh years of austerity has been surprisingly restrained. No populist or demagogue has appeared to break the ancient two-and-a-half party system, even if there is a change in the ‘half’ bit – although that show isn’t over yet either.
It was 2015 before earnings began to rise at levels that might be regarded as making up for past losses, with a 5pc increase.
The Central Statistics Office (CSO) puts the 2016 figure at 5.4pc. That is not all pay rises, because it includes the 100,000 extra people who found jobs in those years.
Some public sector workers did get a 5pc increase and the lowerpaid wholesale and retail sector saw earnings per hour rising by 3.5pc.
That remarkable increase in employment, with an extra 60,000 estimated for this year, and a forecast of 50,000 in 2018, is one of the best reasons for an extra New Year swig of prosecco.
In a wholly unforeseen turnaround, the debate among economists is now about how to manage this success without it turning into another bust.
A more immediate question is how to use the favourable conditions to do something about the accommodation crisis. It would be easy to get the impression that this is solely a crisis of homelessness. That is its extreme manifestation but the problem is much wider.
The Government seems to have difficulty distinguishing between supply and demand. It seems unable to get a grip on the administrative, legal and financial constraints on residential construction, while being prepared to give buyers more money to bid for what is available.
It does not help that policies to encourage more building are both difficult to implement and unpopular with developers, builders and buyers; whereas help-to-buy initiatives require no effort and go down well.
It was never quite clear which meaning of the word “should” the Taoiseach had in mind when he said a couple on average earnings should be able to buy the average house – able now, or be made able in the future?
Either way, it sums up the policy challenge: that the average house should be built, in large numbers, at not more than a third of average disposable incomes, rather than those incomes being inflated with grants, tax breaks and easier credit.
Recent CSO figures showed median disposable income (the most typical level) reaching €20,600 last year, which was a rise of 9pc since 2013. A similar annual increase this year will have brought it to more than €21,000.
The absence of inflation means most of the increase will improve living standards – although it helps to be buying stuff, rather than paying for health insurance or legal services.
TThe response to the harsh years of austerity has been surprisingly restrained. No populist or demagogue has appeared to break the ancient two-and-a-half party system, even if there is a change in the ‘half ’ bit
HERE is that other thing, of course. Brexit. We will be assailed by it all through 2018 and its impact is one of the reasons the ESRI thinks growth will slow to just above 4pc, compared with 5pc this year.
That hardly constitutes a problem but the problems will be looming as the shape of the final departure – now suggested as December 2020 – becomes clear.
Firms will be cutting costs but consumers may find even better bargains in sterling before we all enter the unknown.
Make the most of 2018, may be the best advice.