The Central Bank estimates that GDP growth this year to be 0.2 percent. Three months ago they were estimating 0.8 percent growth. Okay, not much – but going in the wrong direction.
However, we know that GDP numbers can be ‘massaged’ by multi-national accounting practices (e.g. transfer-pricing, etc.). GNP gives a better sense. And the Bank is projecting a fall of -1.7 percent. That’s more pessimistic than their projection three months ago when they hoped it would only fall by -1 percent.
But its next year’s numbers that are alarming. They are projecting a 1.7 percent growth. Three months ago they thought it would be 2.2 percent. Six months ago they thought it would be 2.4 percent. Get the pattern? Sliding back down the hole. This is consistent with what others are coming up with.
Looking into the figures we see the problem. Consumer spending is, for all practical purposes, going to remain static (a 0.4 percent increase). Government spending (consumption) will fall by another -3 percent. Investment is still in negative territory at -3.3 percent. The only thing heading north is exports but the problem here is that not only are exports from the modern, multi-national sector somewhat detached from the domestic economy (there will be little job creation or tax revenue from this sector of exports), there may even be trouble with the numbers as Conor McCabe points out here.
So what do we have? All domestic indicators sluggish at best for next year – what is sometimes called a ‘fragile recovery). In truth, for the domestic economy it may be no recovery at all. And what does the Government proposing doing? Stomping on the economy more; more spending cuts, more tax increases on low-average income earners, more deflation.
Great. So what will happen when consumer spending falls? When Government consumption is actively cut (and don’t forget – government consumption is comprise of purchases of goods and services from the private sector; cut that and you cut private sector activity)? When businesses don’t invest because they can’t see a return on their investment over a medium-term horizon? When employment falls again (the Central Bank estimates a fall of over 7,000 for next year)? When wages remain stagnant and living standards fall from a combination of inflation, interest rate hikes, tax increases and plain ol’ fear?
What will happen then?
The same commentators and analysts who demanded that we cut billions in 2009, that we cut billions in 2010, will be asked what policies the Government should now pursue. And you know what the answer will be? Cut billions and billions more.
Nothing fails quite like failure - especially when its dressed up as success.
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