- Sep 5, 2007
Ireland's economy: Threadbare | The Economist
Ireland is in deep trouble. Its economy is yet truly to emerge from a recession that began in early 2007 (see chart 1). Since then GDP has risen in only one quarter. GNP (a better guide to Irish living standards, because it excludes the net flows of income to parents of the countrys many foreign-owned firms) has fallen for nine quarters in a row. Consumer spending has fallen even harder than income: households saved 12% of their disposable income last year, up from 3.9% two years ago. House prices, which had risen faster than in any other rich country, are 36% below their 2006 peak and still falling. Job prospects are bleak. The unemployment rate is close to 14%, up from 4% or so in the mid-2000s.
The public finances are in a dreadful mess. The government is on track to spend 12% of GDP more than it takes in taxes this year, even after spending cuts and tax rises worth 14.5 billion ($19.6 billion). The deficit will be a staggering 32% of GDP once injections of capital into broken banks are taken into account (see chart 2). The total cost to the state could rise to 50 billion, or 30% of GDP. Anglo Irish Bank, a reckless property lender taken over by the government in January 2009, would account for two-thirds of that