- The latest Economic and Social Research Institute (ESRI) quarterly economic commentary issued today says that the economy will experience a recession this year, the first since 1983. They predict that the economy will contract by 0.4%, that’s after growth of 6.4% in 2006 and 4.5% last year. They are predicting a modest upturn to 2% growth in GNP for 2009.
- That’s not good news generally, and particularly for tourism which is a sector very largely dependent on buoyant consumer spending. And therein lies the problem. In recent years, growth in domestic trip taking has been very strong (+12% last year) but it is now pretty certain that growth will be substantially less this year and next.
- The ESRI has revised its forecast for real consumer spending growth to 1% this year and a slightly improved 2% next year. (The rapid pace of disimprovement is evident from the fact that just 3 months ago the ERSI were predicting consumer spending growth of 3% for this year).
- How rapidly things have changed is highlighted by the stark reality that the Government’s budget surplus of €5.2 billion in 2006 is expected to reach a deficit level of €7.4 billion in 2009, that’s a €12.6 billion swing in just 3 years. That deficit will mean we will have to breach the 3% budget deficit imposed by the EU Stability and Growth pact. Who needs friends in Brussels now?
- On the positive side however, is that during the good years we were able to reduce our debt as a percentage of GDP to 25.4%, which is very good by international standards. The project borrowing needs in 2009 will increase that level to over 34%, which while unfortunate, is still manageable.
- Unemployment is on the move again and predicted to rise to 6% this year (from 4.5% last year) and moving to a higher level of 7.1% in 2009. That is expected to see a return to something we had written out of our vocabularies, net outward migration, which is predicted to reach 20,000 next year.
- Inflation is expected to fall from a 2007 level of 4.9% to 4.5% this year and 3% next. That’s still higher than what is desirable, and a consequence is that it’s predicted that ECB interest rates will remain at 4.25% through 2009. That’s not good either at a time when a reduction in interest rates is just what is needed to encourage investment, but the ECB see inflation as the more evil of the challenges and seem set to fight it by not reducing interest rates.
- Finally the ESRI see the following end of year exchange rates, something that is very important to travel and tourism.
’07 ’08 ’09 US$ / € 1.43 1.55 1.55 Stg£ / € 0.70 0.79 0.79
Not much joy there either then.
- And we haven’t mentioned the elephant in the room yet, oil. But perhaps that’s enough bad news for one day.
- Many of the reasons for the current economic scenario are external, with little enough that can be done to quickly reverse the trends. However, the Government must remain committed to the National Development Plan, seek a pay freeze in the current pay talks, and proceed with haste on the issues of public service costs and performance. A little pain now will advance recovery and mean less pain for all later.
- And people will still travel in great numbers, but the heady growth rates of the past few years are gone, for a little while at least. But as we have seen in the past there are few sectors so resilient as travel and tourism. The product is in excellent shape, and with full commitment to the marketing, training and product development strategies in the National Development Plan, we can look forward to renewed growth, having successfully managed our way through this temporary downturn.