I have just given an interview on the Keith Shanley programme on Sunshine FM on the €100 housing tax. Over the weekend I also gave an interview which appeared in the Irish Sun on the Central Bank's forecast for the Irish economy.
Figures released by the Irish Central Statistics Office show that the value of retail sales has increased by 0.4% in the year to June. This essentially says that people are spending more money on retail shopping and can be taken as a positive sign for the domestic economy. If retail sales are increasing it suggests that more people are starting to spend, which could help boost the economic recovery. The more we are spending the more jobs are created and the more money that is in circulation in the economy. The figures should also be a good sign for Minister Noonan, who has in recent weeks been telling the Irish people to go out and spend. Suggesting that it is our patriotic duty to try to boost our economy by consuming as oppose to saving.
However, are we celebrating these figures too soon? Up until last month retail sales were in decline, with fewer and fewer people spending. So why the reversal in fortune? Why are we suddenly spending more? Well, while retail sales have increased so far this year these figures include motor sales. And as we are aware, June was the last month of the car scrappage scheme introduced by the government. After the 30th of June no government scrappage is allocated for new cars, meaning that if you were going to buy a new car June was the time to do it. So as would be expected there was a rush of people buying cars in June. This rush to buy cars has resulted in an unusual high value for car sales for this time of year, pushing up the total amount of retail sales.
So if we ignore the, what is likely to be a once off, increase in car sales what do thing look like? Unfortunately, things don’t look so good. When we don’t count motor sales we can actually see that retail sales have fallen by 3.2%. This is a substantial drop and includes businesses such as department stores, supermarkets and book shops. This fall is worrying as it suggests that the domestic economy is not actually seeing a revival.
As motor vehicles were the main driver of the recovery in retail sales in June we can ask ourselves will this continue? Can we count on the sale of motor vehicles to drive retail growth? The answer is that it is unlikely that the demand experience by car dealers in June will last. This higher demand was probably driven by people trying to purchase new cars before the scrappage scheme expired. With the scrappage scheme now gone, and with anyone who was going to buy a car probably after doing so to avail of the scrappage scheme, we can expect demand for cars to fall.
So if the one sector which was driving the domestic retail increase starts to contract, the overall outlook for retail trade is bleak. With the announcement of a €100 housing charge and a hard budget in December it is likely that individuals will continue to save any spare income that they have. This is bad news for retail outlets. It is also bad news for jobs. If people aren’t buying then there will inevitably be more shops cutting back on opening hours and staff. But this situation is likely to continue until economic conditions improve, and people are not fearing ever increasing tax hikes. Minister Noonan may have to wait until he sees a return to the types of retail spending experienced during the Celtic Tiger which he so desires.
Justin Doran is a Lecturer in Economics, in the Department of Economics, University College Cork, Ireland.