A Question That Should Be Asked

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When journalists arrive at Government Buildings for the launch of the 4-year ‘plan’ they will have many questions on their mind.  Here’s one that should be asked.

The Irish economy has suffered from three years of a domestic demand recession. Domestic demand is the measurement of all components of our GDP excluding net exports.  It comprises consumer spending, Government spending on public services and investment.  Even in our open economy, domestic demand makes up 80 percent of our entire output, or GDP.

Most businesses, most employment are reliant on domestic demand.  Given that our export sector has only a limited feed-in to the domestic economy (to the extent that net exports are driven by multi-nationals), we are thrown back on to domestic activity. And it has been grim:

2008:  – 5.2 percent

2009:  – 13.9 percent

2010:  – 4.5 percent


The ESRI estimates that domestic demand will continue to fall next year – by a quarter of a percent. But that was an estimate based on a budgetary package of €4 billion in spending cuts and tax increases.

So here’s the question:  what will be the impact of the €6 billion on domestic demand next year? What impact will it have on consumer spending, investment and employment?  And (follow-up question) what impact will the €15 billion have on domestic demand over the next four years?

According to all the forecasters, we will be entering into a fourth year of a domestic-demand recession in 2011. And here’s something to chew on. The OECD is projecting that in 2012 domestic demand will only rise by 0.7 percent. Any bets on that turning negative under the impact of such a deflationary package?  And if that happens what hope of repairing public finances or convincing international markets that we will generate sufficient revenue to pay off our future (and mounting) debts?

It would be interesting to ask the question if only to find out if the Government has worked out the impact of its own proposals on the economy. Or maybe we might find out that we have such myopic rulers that they are either ignorant of, or indifferent to, what they are doing to our jobs, our businesses, our living standards and our society.

I’d certainly like to know.

Image courtesy of the Irish Times, as they paid for it.

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One Response

  1. Peter Mooney

    November 25, 2010 6:59 pm

    You can’t expect jourmalists to ask this question as most of the media that employ them and many, many journalists are as complicit as the political parties in getting us into this mess and they share the view that one way or the other we need cut backs of €15 million over the next few years. Just as much as the politicians they promoted free market economics. Many of the political correspondents regard politics as a game of winners and losers and not as a serious business that has real impacts on people’s lives.