Irish Economy 2013: The IMF (International Monetary Fund) in its latest
review of Ireland's bailout programme, has warned that the country faces "an
acute unemployment crisis" saying the broad jobless rate is at "a staggering
23%" despite emigration.
In the US, the Bureau of Labor Statistics defines the broad rate of
"total unemployed, plus all marginally attached workers, plus total employed
part time for economic reasons, as a percentage of the civilian labour force + the marginally attached [persons not in the labour force who want and are
available for work, and who have looked for a job sometime in the prior 12
months (or since the end of their last job if they held one within the past 12
months), but were not counted as unemployed because they had not searched for
work in the 4 weeks preceding the employment survey. Discouraged workers are a
subset of the marginally attached]." The broad rate was
14.3% in the US in February 2013.
The review says that since the recession started, "employment has fallen
by 15½%, pushing the unemployment rate close to 15%, the share of workers unemployed for over 1 year to 60%, and the share of
very long-term unemployed (over 2 years) to 30%. If involuntary part time workers and workers only marginally attached to the
labour force—two groups that registered significant increases—are also accounted for, the unemployment and underemployment rate in Ireland stands at a staggering 23%."
The Fund says the high share of long-term jobseekers increases the risk that
unemployment will remain high even after the economy recovers. Experience from
other European countries facing high unemployment in the 1980s is that long
spells of joblessness increase the probability of permanent skill loss and exit
from the labour force (OECD, 2012), raising structural unemployment.
It says activation and training policies need to be refocused on the
long-term unemployed to help them to remain in the labour force and adapt their
skills to market needs.
Burton pushes EU Youth Guarantee; Irish apprenticeship system a shambles
At policy level,
the delusionists are still expecting university
research to become a jobs engine and an Irish Examiner
editorial made some pertinent points yesterday on moving around in circles:
"Over the last five
years, since our economy was destroyed, we’ve had analysis after analysis,
strident declaration after strident declaration and, if there was a market
for delusion, more than enough of it to fund a spectacular and more or less
Surely, after half a decade of public discourse on the crisis it is
reasonable to hope that contributions should be in some way connected with
reality? Surely the great, magnificent right of free speech is balanced by
an obligation to accept some of the basic, grinding realities of our
One could start with
Richard Bruton, minister for jobs, the Oireachtas, media, social partners and so
There will be no rocket
growth, pre-2008 is not going to return anytime soon and relying on US FDI will
not sustain a high standard of living. Ireland already ranks with Italy in
actual individual consumption per capita. It's realistic to ask what will the
challenges be over a decade of low growth?
Those who are comfortable
with the status quo today, of course would prefer not to talk about the future.
The Irish jobs crisis
bring to mind the comment in 1958 by Harry Truman, the 33rd US president who had
left office 5 years before: "It's a recession when your neighbour loses his job;
it's a depression when you lose yours."
The ninth review highlights the risks facing Ireland’s economic recovery,
despite acknowledging solid progress to date but warns that "assuring the
durability of Ireland’s exit hinges on the timely delivery on European leaders’
commitment to enhance the sustainability of the program. The recent promissory
note transaction provides a significant reduction in Ireland‘s net debt issuance
needs over the next decade, but the outlook for high public debt is little
affected. Profitability challenges in Ireland‘s financial sector undermine its
capacity to support economic recovery, and, at the same time, contingent
liabilities from the financial sector in a weak growth scenario overhang public
debt sustainability. In tackling this bank-sovereign loop, the ESM (Eurozone
rescue fund) direct bank recapitalization instrument that is under development
could play an invaluable role in making prospects for recovery and debt
sustainability more robust...Breaking the sovereign-bank link would
complement banks‘ restructuring efforts by improving funding access and
costs, supporting recovery and thus reducing risks to debt sustainability that
could later threaten market access."
The review calls for an acceleration in home repossessions and the resolution of
It also wants legislation to enable quick repossessions where borrowers have not
paid any substantial part of their mortgage or agreed to a plan of repayment.
The IMF says the baseline projection for a gradual recovery over the
medium-term hinges on a combination of trading partner growth, renewed domestic
confidence, and steady improvement in lending. A protracted recovery process is
to be expected in the wake of Ireland‘s severe financial crisis in
2008–10, as seen in the low growth realized in 2011–12 and also expected in
2013. By 2014, external recovery is expected to support a more significant
strengthening of export growth, and net exports remain the main contributor to
The main risks to medium-term recovery prospects include the situation of
Ireland’s financial sector:
- Trading partner recovery. Net exports remain a key engine of growth in the
medium term, and sustained recovery hinges on euro area, UK and US developments.
- Fiscal drag. Fiscal consolidation will continue to be significant in coming
years, with the growth impact depending on the composition of measures among other factors.
- Financial reform benefits. Implementation of loan restructuring has lagged to
date, and the benefits of improved asset quality in terms of funding access and costs are
uncertain, depending in part on funding market trends in the euro area.
- Debt overhangs. The envisaged easing in household savings and firming in SME
investments may not be realized if households and firms maintain their emphasis
on debt reduction, perhaps owing to renewed euro area uncertainties or downside in house
- Bank-sovereign loop. High public debt stocks are compounded by still large
contingent liabilities from the banking system in a scenario where weak growth reduces
asset values and heightens loan arrears, implying vulnerabilities for the cost and availability
of funding for both the public and private sectors.
The Fund says the "downtrend in debt in the baseline is contingent on a pick up in GDP growth and the avoidance of
additional fiscal costs from financial sector support; if the above sources of risk keep growth in
check, say at ½% in coming years, Ireland‘s debt ratio would continue to rise, reaching some 134% of GDP by 2018. Moreover, higher loan losses associated with rising unemployment and
weaker asset prices would generate new capital needs once banks‘ buffers are exhausted, which
could further raise debt ratios in the medium term. Were such a scenario to arise, Ireland‘s
ability to rely fully on the market to cover its large post-program financing needs could easily
become strained."The Fund hasn't factored in the reality that
services export growth in recent years has been dependent on tax-related accounting
transactions by large US multinationals, not on economic activity in Ireland.
Irish Economy: No growth in 2012; 6,500 direct jobs account for 52% of services
|Reform Irish style --
respond to a crisis only when it becomes dire.
Ireland ranks with Greece for having the lowest level of generic drugs used.
The cost of Irish State
financed drugs schemes doubled from 2002 to over €1.6bn in 2008. Fees
and other income earned by pharmacists doubled accordingly. It cost
the taxpayer an exorbitant €640m to get €1bn of drugs from factory gate
to patients in the community in 2008.
The drugs bill grew further to €2bn by
2012 and generic drugs accounted for only
5% of the value according to the Department of Health. Why does
it take so long to implement change that would bring big savings? - - The pass the buck culture that is unlikley to change.
In the IMF review, the
Government has given itself a deadline of June 30, 2013 to legislate for
greater use of generic drugs.
"Crisis, what crisis?"
Bureaucrats love that word 'process' and here it is:
"We are in the process of implementing the remaining key pieces of the
budget package: legislating to effect higher charging for private patients in
public hospitals and to mandate greater generic drug use (by end June); seeking
an agreement with public sector unions on reductions in the pay and pension bill
(by end-February, as discussed below); and preparing for the roll-out of the
property tax on July 1."
At present, pharmacists are precluded from substituting prescribed branded
drugs with a suitable generic. So, if your prescription says Lipitor for example,
then this is the drug you must get, even if there is a cheaper alternative.
While this is an unwelcome expense for private patients, for the State, which
is paying out on behalf of medical card patients, it means that its drugs bill
is a symbol of gros incompetence at a time of austerity.
Dermot O'Leary, chief economist of Goodbody,
comments -- "The IMF, sends a very clear message to Irish and European
policymakers. On the positive front, the report suggests that recent events
support Ireland’s capacity to exit the programme on schedule. However, in a
reminder that the job is far from done, the IMF were keen to point out the many
risks that still exist and have the potential to make Ireland’s full bailout
exit more difficult.
The IMF believes that balance sheet adjustments
in the private and public sectors continue to be key constraints on domestic
demand. Among these balance sheet adjustments, it points out that: (i) household
debt remains high and household debt distress continues to worsen; (ii) the SME
debt overhang continues to act as a constraint on job creation; (iii) banks
remain loss-making and have only begun to tackle NPLs (non-performing loans),
and; (iv) high public debt remains an issue. Against this background, the IMF
believes that the recent positive economic data must be treated with caution.
On the growth front, the IMF expects the economy
to grow by 1.1% this year (Goodbody 1.6%) and 2.2% in 2014 (Goodbody 2.6%), but
it also points out that there may be potential upside risks due to better
consumption and investment trends in particular. In this regard, the assumption
of a 1.5% investment decline in 2013 looks especially pessimistic in our view.
Nevertheless, the debt sustainability analysis confirms that Ireland’s debt
trajectory remains vulnerable to lower growth assumptions; for example, if
growth were to average 0.5% over the coming years, debt would rise to an
unsustainable 150% of GDP by 2021.
The risks highlighted by the IMF yesterday are
not new. However, it is clear that the IMF wants to convey the message that
continued efforts by domestic and European policymakers is necessary. On the
domestic side, the key areas of focus are mortgages, the labour market and
public spending constraint. At a European level, the IMF continues to push for
direct recapitalisation for the banks. There is no room for complacency."
Check out our
, at a low annual charge of €25 - - if
you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to
support the service.