ANALYSIS:IF THE Mahon report painted a dark picture of this State's polity, a raft of the most telling quarterly economic indicators, also published yesterday, showed that a pall still hangs over its economy.
The figures – on economic activity and payments to and from the rest of the world – provide no sign of a sustainable recovery taking hold. The economy slowed in the second half of the year.
And, as the first chart shows, all of the main measures of economic performance – gross domestic product, gross national product and domestic demand – contracted in the final quarter of the year.
Even the much-praised export engine showed signs of running out of steam (although that is likely to be a statistical anomaly – another set of figures last week pointed to continued growth).
In comparative terms, the economy’s 2011 performance over the full year was the first relatively normal one since 2007. In 2008 and the two years after, Ireland was at or near the bottom of the euro area growth league.
As the second graphic illustrates, it was best of the worst last year, outperforming the Mediterranean economies, but lagging everyone else. Progress often comes slowly.
The only unambiguously positive trend continues to be exports of services.
For a small island economy, selling services to the world offers the most secure and sustainable path of prosperity. This is mostly because services can be delivered without expensive shipping, thus neutralising the handicap of being at the edge of a continent. The price of geographical peripherality is falling as services become more important.
For some time, Ireland has been a world leader in the services trade, with approximately $1 of every $40 spent on internationally traded services globally accruing to businesses operating here.
Yet again, 2011 marked a new all-time record for sales of services abroad. And as chart 3 shows, it was onward and upward over the course of the year. Receipts for services exports in the final quarter reached €21.2 billion, a record for a three-month period, and one reached despite the slump in most export markets at that time. The value of services sold to foreigners in the last quarter of last year was noteworthy for another reason – it was the first time services exports clearly exceeded goods exports.
Perhaps Michael Noonan had been pouring over these figures before he said last week the Irish economy could take off like a “rocket”. Other than the strong and sustained growth in services exports, it was very hard to find rocket-like qualities in any area of the economy in yesterday’s data.
Consumers are in a funk. Households are over-burdened with debt. Companies aren’t investing. Banks are broken. Government is downsizing. Europe is in recession. The euro crisis has a long way to run.
All that said, economies are unpredictable and a solid, sustained recovery is possible. But the best that can be expected is modest growth in the short term.
A Celtic rocket is as likely to materialise as a winged pig.
