One of Ireland’s best-known economic experts, Waterford man Jim Power, says he can see ‘some green shoots’ of recovery within the global financial system, but stressed that the road clear of ruin has a long, tough way to travel yet.
Speaking at a buffet luncheon in Tramore Golf Club last Thursday, the Clonea-Power native, who is Chief Economist with Friends First, said that that while an upturn internationally is by no means imminent, the “low point has been passed”.
The global economy “is coping” with “the unprecedented shock”, “financial strains are easing” and though most of the world is still in serious straits, “some green shoots are appearing.”
With specific reference to Ireland, Mr Power told the clients/business briefing hosted by Ronan McCarthy Life and Pensions Ltd (Tramore) that the national economy continues to be in deep recession, with every sector badly affected.
Both public finances and the labour market are deteriorating rapidly, he said, and the banking system is “still in a very uncertain place”, despite recapitalisation and nationalisation; though a plan is now in situ at least.
That said, the undermining of Ireland’s competitiveness, the collapse in confidence across the economy, both among consumers and investors, and the country’s severely dented image externally, means that “the path to recovery will be very difficult – but it’s possible provided we do the right things,” he asserted.
The rest of this year will remain extremely challenging, he said.
“Unemployment will rise a lot further”, housing correction was a way to go yet and “consumer dynamics” are downward.
But before the Irish economy improves, the international fiscal cycle needs to find an upward curve. Conditions required for improvement here include a stabilisation of the housing market, a solution to the banking crisis, and, above all else, “competitiveness has to be the focus”.
This agenda should start with a range of reductions, such as: cuts across the economy’s cost base via private sector adjustment; the price of housing; fuel and energy (“still way too high”), and council charges. Minimum wage levels also need to be addressed, he said, and so too professional fees.
Also, as well changing the “inappropriate” social partnership model, the public sector urgently needs reforming, while on the job-creation side, the quality of the labour force and IT capability/innovation must be looked at. Likewise a broadening of the tax base, with lower marginal rates, is needed.
On the equity markets front, Mr Power confirmed there’s been a strong rally since mid-March, with huge money in money market funds starting to move into equities.
However, there are still major challenges ahead. Markets “have probably passed their worst point” but “recovery is unlikely to happen in a straight line”, he added.