Tom Healy: In its latest Quarterly Economic Commentary the ESRI QEC authors observe that 'The euro zone economy is slipping into recession due to the impact of both the austerity measures and the effect of policy uncertainty in the euro zone on investment, consumer spending and employment.'
Nothing surprising there. Most commentators expect a flatlining in the EZ economy at best and a new recession at worst - thanks to a combination of factors including coordinated pan-European fiscal austerity. The QEC goes on to say that
'The austerity measures currently being undertaken, and those implemented over the past four years, are having an impact, as evidenced by the improvement in the public finances. However, while these measures correct the public finances they have a dampening effect on economic activity.'
Following €25bn in discretionary fiscal adjustments since 2008 the public sector deficit is still above 10% of GDP, down from 11.8% previously.
Evidence that it is dampening economic activity is the projection by the QEC that private consumer spending will decline in real terms of 1.8% this year and invetment will decline by 3.3%. No hope there for a turnround in the domestic economy any time soon. The QEC projects a further contraction in the domestic economy in 2013. Contrast that with the latest Economic and Fiscal Outlook by the Department of Finance in November which had no volume change in private consumer spending and a 3.2% increase in investment in 2013. It will be argued that the slowdown in internatinal trade explains the downgrading of economic forceasts more generally. But the truth is that the domestic economy is continuing to contract at a faster rate than had been forecasted and all the signals are that fiscal austerity in recent Budgets have driven that decline.
But, the QEC comments as do most economic commentators at least within Ireland that 'there is no other way':
There are very few policy options open to the government to stimulate growth as the traditional instruments of macro policy are either not available (monetary and exchange rate policy) or completely constrained (fiscal policy).
This line is accepted uncritically by most mainstream economic and media commentators. Next month a new economic research institute established under the umbrella of the ICTU will challenge that view and propose an alternative focussed on growth-enhancing strategic investment in much-needed infastructural development.