Post by earl on Jan 29, 2008 17:43:15 GMT
Like a bicycle in a traffic jam, Ireland’s economy has defied every obstacle the world economy has thrown at it since the mid-1980s. In every year since 1993, gross domestic product grew by 4 per cent or more.
But to many observers the lucky country now seems headed for a fall. With a quarter of its economy dependant on its property market, things look grim. But are they? In the short-term, the answer is yes. From just under 5 per cent last year, Ireland’s economy will grow by little more than 2 per cent next year. A three-year-old housing bubble is bursting, a process likely to take another nine months. More worrying is the fact that Ireland’s construction industry employs around 270,000 or 13 per cent of Ireland’s labour force. It is a particularly unlucky 13: the European Union average construction employment share is 7 per cent. With Ireland’s property boom subsiding, around 100,000 people could, in theory, lose their jobs. That is 5 per cent of the Republic’s 2m-strong labour force.
But in one important respect Ireland is different, a difference that many if not all commentators on its recent growth have ignored. The country is vastly underpopulated. Like a vacuum in a high-pressure globalised economy, it has huge potential to continue drawing in labour and capital for decades to come. While that fact will not save it from a temporary correction of its overheated property market, it promises fantastic potential once that correction has run its course.
In 1841, the island of Ireland was home to more than 8m people, compared with 14m in England. England was well governed and was industrialising. Ireland’s economy was warped by colonial maladministration. As a result, in spite of being a net exporter of food, a savage famine wiped out one fifth of Ireland’s population. Long after it should have recovered from this, forced and unnecessary emigration caused Ireland to pour its essence into the world around it. Now one of the world’s most open economies, Ireland is finally able to support the population it lost in previous centuries. Globalisation is bringing Ireland on a journey back to the future.
For the first time since 1861, the Republic of Ireland’s population passed 4m in 2006, bringing the island’s population to 6m. Up a million in a generation, this surge in population growth has stimulated strong economic growth.
This demographic dividend needs to be complemented by something else; a density dividend. Poor transport, high utility costs and weak competition in many markets are raising the costs of doing business. More seriously, the failure to adequately urbanise, resulting in population sprawl, is holding back productivity in indigenous industry and significantly raising the cost of delivering public services. More immediately, the overhang of activity in Ireland’s property market will – just as it did in Germany in the 1990s – drag down growth in coming years.
It will also have to deal with a housing culture of high home ownership and variable rate mortgages that makes it more vulnerable to European Central Bank hawkishness.
But in the long if not the medium-term, the future looks bright for Ireland. With the Republic of Ireland’s population growing by 2.5 per cent a year, its population will reach 5m by 2019. Although certainly overvalued, Irish house prices will continue to benefit strongly from this demographic story, unlike the US.
In 1984, the US president, the prime minister of Canada, the finance minister of Australia, the prime minister of New Zealand and president of Israel were either born in Ireland, children of parents born in Ireland or grandchildren of grandparents born in Ireland. In that year, the Irish-born president of Israel Chaim Herzog found himself grappling with massive immigration flows that increased Israel’s population from 2m to 7m in just six decades. Coincidentally, his son is now minister for the Diaspora. Were Herzog senior alive today he would say that Ireland’s challenge is to reap a harvest of population growth in a way that secures a more efficient clustering of population and higher productivity growth.
Can it be done? As the man who foresaw the founding of the state of Israel, Theodor Herzl responded to a similar question a century before: “If you will it, it is no dream.”
But to many observers the lucky country now seems headed for a fall. With a quarter of its economy dependant on its property market, things look grim. But are they? In the short-term, the answer is yes. From just under 5 per cent last year, Ireland’s economy will grow by little more than 2 per cent next year. A three-year-old housing bubble is bursting, a process likely to take another nine months. More worrying is the fact that Ireland’s construction industry employs around 270,000 or 13 per cent of Ireland’s labour force. It is a particularly unlucky 13: the European Union average construction employment share is 7 per cent. With Ireland’s property boom subsiding, around 100,000 people could, in theory, lose their jobs. That is 5 per cent of the Republic’s 2m-strong labour force.
But in one important respect Ireland is different, a difference that many if not all commentators on its recent growth have ignored. The country is vastly underpopulated. Like a vacuum in a high-pressure globalised economy, it has huge potential to continue drawing in labour and capital for decades to come. While that fact will not save it from a temporary correction of its overheated property market, it promises fantastic potential once that correction has run its course.
In 1841, the island of Ireland was home to more than 8m people, compared with 14m in England. England was well governed and was industrialising. Ireland’s economy was warped by colonial maladministration. As a result, in spite of being a net exporter of food, a savage famine wiped out one fifth of Ireland’s population. Long after it should have recovered from this, forced and unnecessary emigration caused Ireland to pour its essence into the world around it. Now one of the world’s most open economies, Ireland is finally able to support the population it lost in previous centuries. Globalisation is bringing Ireland on a journey back to the future.
For the first time since 1861, the Republic of Ireland’s population passed 4m in 2006, bringing the island’s population to 6m. Up a million in a generation, this surge in population growth has stimulated strong economic growth.
This demographic dividend needs to be complemented by something else; a density dividend. Poor transport, high utility costs and weak competition in many markets are raising the costs of doing business. More seriously, the failure to adequately urbanise, resulting in population sprawl, is holding back productivity in indigenous industry and significantly raising the cost of delivering public services. More immediately, the overhang of activity in Ireland’s property market will – just as it did in Germany in the 1990s – drag down growth in coming years.
It will also have to deal with a housing culture of high home ownership and variable rate mortgages that makes it more vulnerable to European Central Bank hawkishness.
But in the long if not the medium-term, the future looks bright for Ireland. With the Republic of Ireland’s population growing by 2.5 per cent a year, its population will reach 5m by 2019. Although certainly overvalued, Irish house prices will continue to benefit strongly from this demographic story, unlike the US.
In 1984, the US president, the prime minister of Canada, the finance minister of Australia, the prime minister of New Zealand and president of Israel were either born in Ireland, children of parents born in Ireland or grandchildren of grandparents born in Ireland. In that year, the Irish-born president of Israel Chaim Herzog found himself grappling with massive immigration flows that increased Israel’s population from 2m to 7m in just six decades. Coincidentally, his son is now minister for the Diaspora. Were Herzog senior alive today he would say that Ireland’s challenge is to reap a harvest of population growth in a way that secures a more efficient clustering of population and higher productivity growth.
Can it be done? As the man who foresaw the founding of the state of Israel, Theodor Herzl responded to a similar question a century before: “If you will it, it is no dream.”
