I have contributed to an interview on the Cork News on the forthcoming budget. The article is available here.
Myself and Declan Jordan gave this presentation to the West Cork Leader meeting on Future West Cork last night in Inchydoney. It is a summary of West Cork over the last number of years. We used data from various sources to highlight some of the key trends in the West Cork area.
The central bank has this week revised upwards its growth forecast for 2011. Previously, it had forecast that there would be practically no growth in the economy this year. However, the latest forecast expects GDP to grow by 1% for 2011. While not as high as could be hoped it is nevertheless positive growth at a time when Ireland needs some positive news. However, it should be noted that GDP is essentially made up of four components; trade, domestic consumption, investment and government expenditure.
Looking closer at each of these components of GDP we can see that while the economy is forecast to grow at a rate of 1% this year, this growth is driven exclusively by export growth. Exports are expected to increase by 5.3% this year. This represents a substantial boost for Irish GDP. All of the Irish recovery to date has come from increased exports. These are made up of multinational companies in Ireland manufacturing goods here and selling them abroad and also the manufacture of goods by our own domestic companies and their foreign sales. Without this increased export activity Ireland would still be experiencing negative growth.
When we look at the other factors of GDP, these are all still falling. Domestic consumption, which is basically what people are spending in the shops every day, is still falling as it has been for the last number of years. The continual decline in the amount individuals are consuming has a negative impact on the economy as less money is in circulation and changing hands. The reduction in consumption has resulted from people having less money to spend due to job losses and tax increases and people saving more in anticipation of further cuts to come. All of this has resulted in declining domestic consumption.
Likewise, investment, which is made up of property purchases and firms buying new machinery, is also continuing to fall. While it is expected that firm investment will actually be positive in 2011, this is more than cancelled out by the continual decline in property investment. The rate of purchases of property has continued to fall throughout 2011 and represents a significant negative impact on the overall economy.
The final element of GDP is government expenditure. Again this is falling, with lower levels of spending across most government departments. It is expected that this will fall by 3.8% this year, with further cuts next year.
Overall, while the forecasted return to positive annual GDP growth in 2011 is good news, it should be borne in mind that of the four elements which drive growth, Ireland is solely reliant on exports at the moment for growth. Should the world economy deteriorate, our export markets may shrink and this would have negative implications for our continued recovery.
Justin Doran is a Lecturer in Economics, in the Department of Economics, University College Cork, Ireland.