Just when you though it couldn’t get any worse, along comes the EU Commission with their projections for the Irish economy. It will make grim reading for the Government. All their projections are being undermined. Of course, the EU could turn out to be wrong and the Government right – so we are just dealing with projections. However, with media leaks that the Government will be revising growth downwards in a couple of weeks, even they are heading in the direction of the EU projections. Let’s compare some indicators.
The Government is hoping for a quick return to robust growth. The EU is not so hopeful. The Government is hoping for an average annual growth rate of 2 percent up to 2014. The EU expects it be 1.2 percent. At that level, the economy is stagnating.
To bring down unemployment, there has to be job creation. To absorb new entrants into the market and reduce the dole queues. But the EU suggests that job creation will be sluggish over the medium term.
The Government is hoping that there will be 31,000 more people at work by 2014 compared to last year. The EU projects that there will be 5,000 fewer people in employment by 2014 compared to last year. That’s why unemployment will remain so high and why emigration will continue apace.
People are trying to deal with higher taxation, higher prices and some of the highest debt levels in Europe. All this might be bearable if real wages were rising – that is, wages were rising after inflation. Even the Government’s projections are pessimistic. They project that average real wages will be static in 2014. The EU, however, projects that average real wages will fall by 1.4 percent. Hard to see households coping with that.
Investment is the key. Drive investment (and in the right places) and we can start to turn this mess around. The Government is hoping that investment will rise by 3 percent by 2014 – not much, but better than nothing as the saying goes. But, again, the EU throws cold water on that projection – suggesting that investment will fall by 3 percent up to 2014.
But, saving the worst for last:
When the Government took office last year, unemployment was 14.2 percent. To be fair to any new Government, it takes time to bring down the unemployment rate – especially after it increased so quickly under the previous Government. But after the Jobs Initiative, the Action Plan for Jobs, a ‘jobs-friendly’ budget last year – the EU is projecting that unemployment will still be 14.2 percent in 2014.
Ireland will be a relative outlier, though not as bad as chronic Greece and Spain. Still, the majority of EU-15 countries are estimated to have unemployment rates in single figures. We are a long, long ways from that.
And these are not just numbers on a page. This will have a real impact on people’s lives – more joblessness, more emigration, reduced living standards. And it will have an impact on the budgetary arithmetic. With lower growth and higher unemployment, even more cuts and tax increases will be necessary to keep the austerity programme on deficit-reduction target – at least, on paper.
Personally, I didn’t expect this level of pessimistic revision. One day I’ll learn.