A Look at Ireland's Economy After St. Patrick's Day

It's after St. Patrick's Day, but it is still worth taking a look at a brief analysis on the economy of Ireland. Consider the following SBE Council Cybercolumn from late last week:

On Saturday, March 17, everybody's Irish. After all, it's St. Patrick's Day.

As Americans celebrate all things Irish, it's worth taking a quick look at the state of the economy of Ireland.

Of course, it must be understood that all of Europe has been suffering, and the near-term outlook is negative.

According to a report in the March 15 Irish Times, "Bloxham Stockbrokers has revised downwards its economic forecast for the year, blaming uncertainty in the global economy for a weakening of the country's prospects. Its report projects growth of just 0.5 per cent in real gross domestic product, compared with previous estimates of 1.1 per cent. Next year, GDP is expected to grow by 2 per cent, according to Bloxham's estimates." It was pointed out that slowing exports were a main reason for the growth outlook downgrade.

At the same, it was noted, "However, the country is in a much better position than other euro zone peripheral debt countries to grow once the world economy picks up, Bloxham said."

Consider three critical points.

First, Ireland in fact is in a far better position than most of its neighbors. Keep in mind that, while Ireland's GDP performance was worse than the EU in general over the last four years, for more than a decade prior, Ireland's economic growth far outdistanced the EU (not to mention the U.S. as well).

Second, part of Ireland's growth story was that government spending as a share of GDP was far below the rest of Europe. For example, before the recent economic mess hit, Ireland's government expenditures came in at 34.3 percent of GDP in 2006, compared to 46.3 percent among the 27 EU nations, according to the European Commission's Eurostat data.

However, Ireland's government spending exploded recently, reaching 66.8 percent of GDP in 2010. That level will have to come down to where it was previously - and do so rapidly - in order for Ireland to get back on a solid growth track.

Third, given that economic freedom is the necessary foundation for entrepreneurship to flourish, and therefore, for the economy to grow, it is critical to point out that on the Heritage Foundation's "Index of Economic Freedom 2012," Ireland ranks an excellent number 9 out of the 179 nations ranked.

But it also was noted that Ireland's score dropped, due in part to that increase in government spending. It was noted in the index: "Its score has decreased by 1.8 points from last year, reflecting poorer management of government spending and reduced monetary freedom. The Irish economy fell to 2nd place in the Europe region behind Switzerland. Ireland recorded one of the 20 largest score declines in the 2012 Index."

Looking ahead, Ireland's strengths - for example, strong property rights; a low corporate income tax rate (12.5%); a "streamlined regulatory process is very conducive to dynamic investment and supportive of business decisions that enhance productivity" (as noted in the index); and openness in terms of global trade and commerce - put the nation in a far better position to get back on a strong growth track compared to much of Europe.

Getting government spending rolled back, though, will be critical. If that happens, we can get back to celebrating all things Irish, including the Irish economy.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.