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The Irish economy suddenly looks…. very shaky

It’s perfectly understandable if you missed it, because, let’s face it, the news is Coronavirus 24/7 these days, but on Monday the Society of the Irish Motor Industry (SIMI) released data on new car sales for the first two months of 2020. The figures were, well, not good:

New car registrations for February were down 7.7% (13,915) when compared to February 2019 (15,069). Registrations year to date are also down 4.9% (45,096) on the same period last year (47,439).

Light Commercials vehicles (LCV) are down 6.9% (2,294) compared to February last year (2,465) and year to date are down 0.8% (7,946).

SIMI director Brian Cooke blamed the Coronavirus, presumably because the Coronavirus is easy to blame for pretty much everything at the moment, but he did have a reasonable argument, noting that the sales of new cars to car rental companies may well be down because of fears of a lack of demand in the tourism sector in the coming season.

Then, yesterday, responding to the US Government’s emergency interest rate cut, the director of the Irish small and medium enterprise association (ISME) Neil McDonnell, sounded distinctly gloomy in the pages of the Irish Examiner:

Head of business group Isme, Neil McDonnell, said that it was concerned about the outlook for the Irish economy.

There were “dozens of calls to Isme, voicing real concerns over Brexit, corona-virus, an overdue recession, and the next government’s tax and spend policies,” he said.

Twelve years ago, those of you old enough to remember will recall that you could not turn on your television set without hearing a Fianna Fáil politician utter the phrase “small, open, economy”. Back then, it was used to explain that as an island economy hugely dependent on international trade, travel, and tourism, Ireland was uniquely vulnerable to the economic shock caused by the global banking crisis. To be fair to Bertie and co, that was true. And it remains true today.

The difficulty with the Coronavirus is that it is impacting the very things on which the Irish economy most depends for its success. Global travel, and therefore tourism, is likely to fall. While tourism is not the only pillar of our economy, it’s a jobs-rich one, and a significant hit to inward travel this summer will have a considerable impact on hotels, bars, restaurants and small towns across the country.

Then, of course, there’s the all-pervasive political uncertainty. Almost a month after the General election, there is no immediate prospect of the country having a functioning government, and no immediately obvious date for a second election that might clarify matters. This uncertainty is supercharged by the fact that the UK and the EU are currently butting heads like two Stags in autumn over the terms of the negotiations for their trade deal, which is likely to be resolved by the end of the year and looks, at this point, as if it will mean new barriers to trade for Irish businesses.

Households and businesses have no way of knowing, in short, what the world will look for them in twelve months’ time. That’s not an environment in which a wise person makes a large investment, and therefore it’s reasonable to expect the number of large investments to fall – which might explain the car sale numbers to some extent.

And of course, since Ireland is vulnerable to the international picture, things happening elsewhere impact us as well. If China, for example, endures a major economic slowdown on foot of Coronavirus, Irish businesses will suffer. If the US stock market fall is something more than a blip – and emergency interest rate cuts suggest fears in Washington that it may not be – then that has the potential to dramatically limit investment into Ireland.

And what if there is, in fact, a recession? With no Government in place to respond to it, things could get very messy. Imagine, if you will, if some sector needs emergency assistance later this year, and the whole thing devolves into a bunfight in a Dail with no Governing majority.

No government, no clear line of sight to what trade with the next door neighbour will look like in 12 months, fears for the tourist season, and the potential for recessions in some of our largest trading partners.

All in all, the fact that almost every party bar Sinn Fein seems to want to be in opposition, rather than Government, is starting to look like a smart move.

Ireland is facing into potentially a perfect storm, with nobody at the wheel of the ship.




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