Slowdown probably a speed bump – but debt is high as clouds gather

ONE of Paschal Donohoe’s preferred phrases is “broadly balanced”. That’s how he describes his plan to run a small deficit in the upcoming Budget.

It’s a clever way of paying lip-service to prudence, while discreetly acknowledging the reality that on his watch, the country is still spending more than it takes in – even with an economy that has been performing well with tax receipts booming.

To be fair to the minister, after years of austerity there are many demands on the public purse and it has been cheap to borrow money. That’s made running a deficit easier, without a backlash he might have got from Brussels.

But what the latest statistics show is that economic growth can’t be taken for granted. The drop in quarter-on-quarter growth is probably a speed bump, or perhaps a sign growth is moderating.

This economy remains heavily indebted and faces plenty of potential downward triggers, ranging from Brexit to Donald Trump’s trade policies.

GDP – the typical measure of a country’s economy – flatters Ireland because the activities of large numbers of multinationals here distort that measure in a way that obscures what’s really happening on the ground.

In similar fashion, the sustainability of our public debt burden is also distorted. The standard measure of sustainability is to compare debt to GDP. If debt is high relative to GDP, then you have a problem. But because Irish GDP is artificially high, the true picture is muddied.

Yesterday, the budgetary watchdog, the Irish Fiscal Advisory Council, tweeted that using a more accurate measure of what is happening on the ground (known as GNI), our debt burden “remains high”.

That’s probably going to hinder our ability to borrow on the markets if the economy does face an external shock.

Forget the phrase “broadly balanced” – we’re still borrowing. And if things get really bad, Paschal’s deficit might help topple us over.