For Colman Collins, every day of 2009 was a “survival exercise” at Collins McNicholas, the recruitment firm he co-founded almost two decades earlier. As employer demand for new staff dried up amid the worst recession since 1922, Galway-based Collins McNicholas halved its workforce to 13 people.
These days, Collins has 31 employees and some 100 contractors, a larger staff than he ever had during the Celtic tiger. They are needed to fill vacancies in the sectors enjoying the country’s nascent recovery. But thanks to a brain drain from five years of emigration and a dearth of applicants with the right qualifications, finding candidates for clients such as Cisco and Boston Scientific is a challenge.
“If you get a CV in from an IT guy, it’s almost like getting a cheque in the post,” Collins said. “There is a cohort of people who have left the country; some will go native and some will come back. But it leaves you with a shortfall of candidates in certain sectors.”
Last week’s Live Register figures from the Central Statistics Office reflect these views, said Dermot O’Leary, chief economist at Goodbody Stockbrokers. The number of dole claimants dropped in August for the 26th consecutive month, to 380,100. The unemployment rate now stands at a five-year low of 11.2%, compared with 15.1% at the peak of the recession in early 2012. The dial has barely nudged since July.
“Ten out of the 14 sectors the CSO looks at to measure annual employment are growing, so the breadth of the recovery is widening,” O’Leary said.
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Goodbody expects gross domestic product (GDP) to expand 3.5% this year. It is just one of many forecasts to bolster suggestions that economic conditions by the end of this year may match those of 2006, resuming Ireland’s status as the fastest-growing economy in the eurozone.
THE unemployment figures were among a raft of recent economic indicators to augur well for future growth. The once- beleaguered manufacturing sector, which accounts for about a quarter of GDP, grew in August at the quickest pace since the previous century as new orders flooded in.
The proportion of mortgages in arrears for three months or more, meanwhile, has fallen for a third quarter in a row, the Central Bank said. But it was the revelation last week that tax revenues at the end of August were almost €1bn ahead of the government’s target that has heaped most pressure on finance minister Michael Noonan to reduce the financial burden in his budget next month after six years of austerity.
The minister has suggested any easing of the tax burden will be aimed at low and middle-income workers. But he pointed out that Ireland’s borrowing costs are still about €800m a month, possibly in an effort to temper mounting budget expectations raised by some Labour and Fine Gael ministers throughout the summer.
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Alan McQuaid, chief economist at Merrion Stockbrokers, believes Noonan was right to contain predictions of a more generous budget as the economic pick-up is still fragile. However, the minister does need to cut taxes in some form to stimulate consumer spending, because last week’s 10-basis point cut in interest rates by the European Central Bank (ECB) to a record low will simply not suffice.
“The ECB would have been better off putting €20,000 in everyone’s accounts and saying, ‘Go on a spending spree and we’ll foot the bill,’ ” McQuaid said. “I’d be surprised if Noonan doesn’t cut taxes on some front. You could argue he’d have to offset that elsewhere in the budget, but he could do that in the form of a higher Dirt rate, because he needs to encourage people to spend instead of save.” With many consumers, especially those in their thirties, forties and fifties, still struggling to repay debt, afford new homes and pay the growing number of stealth taxes, the post-bailout economy is hardly out of the woods. Yet it is beginning to look that way to Seán Murphy, deputy chief executive of Retail Excellence Ireland, the country’s largest retail industry body.
Consumer sentiment is rising and retail sales, excluding car sales, grew by 3.3% in July from a year earlier. “Talking to suppliers in the UK, where Irish buyers are sourcing items for Christmas, a common refrain you hear is that the Irish are back, and buying,” he said. “The growth in employment numbers is feeding into consumer spending and footfall.”
Although summer trading has been quieter than in recent years, Murphy attributes that to more consumers taking overseas holidays. “If you held on to your job during the recession — even if you took a pay cut — and you can see can light at the end of the tunnel, you can make [spending] decisions you’d been putting off for ages.”
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Murphy said that increased consumer spending could lead quickly to increased employment in the retail sector. “There’s no reason why the industry wouldn’t employ 300,000 quite rapidly, from 260,000 at present. So the government needs to make good on its noises and promises to deliver in the budget.”
There are fears, though, that the decline in the unemployment rate is masking continued emigration and the government’s job activation schemes, such as the JobBridge programme that pays graduates €50 a week extra on top of their social welfare benefits for internships that don’t lead to full-time jobs. Since the onset of the recession in 2008, almost a quarter of a million people have left Ireland, although the pace of departures is slowing.
O’Leary believes concerns about the effect of emigration on the jobless rate are largely unfounded. “The reason for the most recent unemployment falls has been due to employment growth, not movement out of the labour market.”
Philip O’Sullivan, an economist at Investec, also pointed out that long-term unemployment remains stubbornly high. In August, 47.1% of those on the Live Register had been on it for more than a year, compared with 45.2% in August 2013.
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Isme, a group that represents small and medium-sized enterprises, last week dismissed job creation as “glacially slow”. It warned that calls for wage increases from Labour ministers were having “a negative and debilitating effect on job prospects”.
Goodbody has also described the boom in residential and commercial property prices, with Dublin house prices rising 23% and national values up 13.4% in July, as “uncomfortable”. On Wednesday, house hunters began queuing outside a Dublin housing estate five days before the properties went on sale.
There remain lingering concerns about an urban-rural divide in the economic recovery. Even Heineken, a Dutch brewer, dubbed it a “two-speed” phenomenon, saying the market for its eponymous lager brand is “mirroring the tiered economic recovery which the country is currently experiencing”.
“On-trade growth is very much focused in the Dublin and suburban areas,” it said.
The Department of Finance has been keen to exercise caution. Some 40% of taxes for the year have yet to be collected, while one-off corporation tax payments flattered the recent exchequer returns. Income tax, the largest category, was just 1.7% ahead of projections.
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Noonan, eager not to jeopardise the recovery, appears keen to use the additional tax income for his pursuit of a budget deficit of 3% of GDP. And there is limited scope for the minister to provide tax relief in the budget — he may have to increase taxes elsewhere to fund any reductions.
The minister suggested the government was willing to consider changes to the universal social charge (USC), a measure that would cost some €500m. McQuaid said that cutting the USC would have “a huge boost on people’s psychological thinking”, because it is associated with austerity.
“If you cut it, you are telling people the forthcoming water charges are the last part of the austerity budgets.”
Noonan is also mulling the possibility of raising the €32,800 threshold at which workers start paying the higher 41% rate of income tax on their earnings. Few other countries apply such a high level of tax at such a relatively low level of income.
THE pressure will only mount for giveaways. Starting tomorrow, Noonan plans to hold talks with European officials in Brussels about the early repayment of part of Ireland’s €67.5bn bailout loans from the International Monetary Fund (IMF) .
If the government succeeds in substituting IMF loans, which carry an interest rate close to 5%, with market funding, which is now available at 1.8% for 10-year government debt, the savings would be in excess of €400m a year. That would go a long way towards achieving the deficit target for 2015, said Colin Bermingham, from BNP Paribas’s corporate and investment banking arm in London.
Ultimately, Noonan is keen to create a “new type of economy” altogether. He said Ireland needs to eschew its “boom and bust cycles” in favour of emulating the Scandinavian economies that weathered the global downturn through sounder public finances. His goal of having the economy grow at a steady average of 3% a year for the next decade will be “put to the test over the next two years”, O’Leary said. Political complacency, and volatility in the eurozone, could sideline the plan.
“Sensible decisions have been made on the fiscal side over the past three years,” he said. “I would worry that, in the run-up to the election, they won’t be as sensible.
“Since the late 1970s, governments’ spending growth has increased ahead of elections. Let’s see if that’s the case over the next two years. That will contribute to whether the boom and bust cycle will actually end.”
Collins, for his part, is keen that economic history does not repeat itself. “There is a great opportunity now to look at what we want this economy to look like in the future, rather than doing the same thing all over again.”