They’re calling it the recession that never was. A few months back the outlook was grim. Growth had lost momentum and high inflation had broadened across countries and products.
Economists were predicting a euro zone recession this year with several countries expected to experience significant contractions on the back of their exposure to Russia’s war in Ukraine and higher energy prices. Tech job losses were the canary in the coal mine.
There’s been an about-turn in sentiment, however, driven by lower energy prices, strong government supports and a faster-than-expected reopening of the Chinese economy.
Analysts are now predicting the euro zone will avoid recession, growing by 0.1 per cent in 2023 according to a survey of economists by Consensus Economics. The International Monetary Fund is also expected to upgrade its growth forecast for the global economy.
Much of news here centres on tech job losses because most have big operations in Ireland. But as Goodbody economist Dermot O’Leary noted: “the potential job losses in Ireland from this wave of announcements is small in the context of the wider labour market to date, amounting to less than 3 per cent of IDA-supported employment.”
He cautioned, however, that the tech retrenchment may have a bigger impact on Government tax receipts because of the downturn in profitability they signal.
Despite the brighter outlook, there are still two big economic forces to play out. The final resting place of interest rates and whether they stay elevated for a longer-than-expected period will have a big impact on future growth: central banks are still sounding extremely cautious about the need for continued monetary tightening. The focus is not on how high inflation might go but how long it might linger.
The war in Ukraine, the possibility of a major Russian offensive combined with greater Western involvement, presents another unknown. No one has a handle on how this might play out nor the potential economic fallout that might ensue. So while the outlook has improved, uncertainty remains high.