Economy

The two-tier nature of the Irish economy

European Commission’s economic report just latest in forecasts from Irish and global bodies

EU commissioner for economy Paolo Gentiloni gives a press conference on the Summer 2021 Economic Forecast at the European Commission in Brussels, Belgium, on Wednesday. Photograph: Stephanie Lecoq. Photograph: EPA

Thu Jul 8 2021 - 05:10

The two-tier nature of modern economies, and in this instance Ireland's economy, was neatly illustrated yesterday when the European Commission released stronger-than-anticipated summer economic forecasts for the euro zone while the OECD warned of a "slow rebound" in employment across developed nations. In globalised economies, headline growth, as measured by gross domestic product (GDP), has become increasingly dislodged from everyday activity, not least because of intangible assets such as intellectual property patents, which confer value often without the associated underlying activity you'd expect.

The latter drove a 25 per cent jump in Irish GDP in 2015, the sharpest on record, triggering the “leprechaun economics” jibe.

The commission said the euro-zone economy would grow faster than previously thought both this year and next, despite emerging concerns about the fast-spreading Delta variant.

Within this, it upped its growth forecast for the Irish economy to 7.2 per cent from 4.6 per cent previously. The better-than-expected outlook for Ireland comes on the back of the vaccine rollout and the likely jump in domestic demand with the easing of restrictions.

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It also comes in the wake of the Central Bank’s 8.2 per cent forecast for growth this year and the Economic and Social Research Institute’s 11 per cent forecast, both on the back of an expected rebound in domestic demand.

It’s hard to understand how these bumper forecasts can reside alongside such an elevated level of unemployment, currently put at 18 per cent but expected to remain high for the rest of the year and for several years to come.

The OECD warned Ireland’s recovery from the pandemic – in terms of employment – may take until 2024 and would be one of the slowest rebounds of any developed country.

This raised the prospect of long-term unemployment and possible “scarring” with affected workers finding it more difficult to return to full-time work, it said.

The Paris-based think tank warned that Covid had accelerated pre-existing social and economic divides in many developed countries and that is something we need to pay close attention to here.

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