With a general election in November or early December now increasingly likely, every piece of economic news from here on will be closely scrutinised either by the Government to defend its record in office or as proof the cost-of-living squeeze is abating or conversely by the Opposition to highlight ongoing challenges in housing and other sectors. Here are five key flashpoints that could inflect the campaign narrative.
House prices and new home completions
Undoubtedly the fault line of the Irish economy. There are two data points that will garner the headlines as we enter the election phase: prices and supply.
Both are seemingly going the wrong way for the Government but the party that should be capitalising, Sinn Féin, is mired in difficulties of its own. On Wednesday last week we learned that house price inflation had returned to double-digit territory with values nationally rising at a rate of 10.1 per cent in the year to August. To give you a sense of how corrosive that is for prospective buyers, it means the price of the average property bought and sold on the Irish market (those in the €400,000-€450,000 bracket) is now rising at a rate of roughly €3,500 a month. And what of the Government’s solution to the crisis: supply? New dwelling completions hit a post-crash record of nearly 33,000 last year but are likely come in marginally below that level this year amid a slowdown in construction. A pickup in housing commencements or starts, however, should see supply kick on again in 2025 and 2026.
Spending overruns
Whether they relate to the health budget or the ever-ballooning cost of the national children’s hospital, keeping a lid on costs has been a perennial problem for the Coalition. The €336,000 price tag for the now infamous Leinster House bike shed would have been a scandal in any jurisdiction but it touched a raw nerve here. It was no surprise that in the face of a giveaway budget that put money in most people’s pockets, Sinn Féin’s finance spokesman Pearse Doherty brought up the Coalition’s spending pedigree. The Government had been “exposed over and over again as serial wasters,” Doherty said. Being able to financially manage big infrastructural projects overlaps with our evident need to build critically important infrastructure.
Cost of living
If headline inflation has come down (it was less than 1 per cent in September), Ireland’s high-cost economy is not going anywhere and is probably the biggest anchor on living standards here. Eurostat’s annual country-by-country price survey, which ranked Ireland as the second most expensive European Union member state behind Denmark, suggests citizens here are paying 42 per cent more for basic goods and services than the EU average. Irish wages aren’t 42 per cent above the EU average but we seem to pay over the odds for all manner of stuff: rent, electricity, insurance, eating out, even bottled water. Ironically part of the explanation is also what many consider Ireland’s chief success story: multinationals. These companies pay big wages which allow their employees to pay big prices. The Government’s giveaway budget aims to address the financial pressures many households find themselves under. It’s perhaps no coincidence that the proposed double child benefit and welfare payments are scheduled to fall in the middle of the campaign.
Interest rates
While borrowing costs remain elevated, the shift in the European Central Bank’s interest rate cycle is proceeding more quickly than expected as inflation slows. The ECB reduced headline rates for a third time last week and with the wider euro-zone economy slowing on the back of a stuttering German economy and an expected fiscal consolidation in France, markets are pricing in a sequence of rate cuts between now and next summer, which, according to financial analysts, should reduce the annual cost of home loans for borrowers here by more than €2,000, Combined with rising wages, this will give the Government a chance to claim it has successfully managed the inflation crisis and that things are turning for the better. A potential fly in the ointment is that lower interest rates are likely to accelerate house prices further.
Business failures
Three years of rising costs and straitened consumer spending are now playing out in the restaurant sector through a spate of high-profile closures, including most recently, in Dublin, Shanahan’s on the Green and Dillinger’s in Ranelagh, among others. Adrian Cummins, chief executive of the Restaurant Association of Ireland (RAI), issued a stark warning: “We’ve already seen 612 closures, and if nothing changes we’ll see another 1,000 shut down in the next year.” Before the budget, representative groups had been campaigning for a return to the reduced 9 per cent rate of VAT as a means of addressing elevated business costs but it fell on deaf ears. Minister for Enterprise Peter Burke maintains that for every one enterprise that fails, 10 new ones are set up and that Ireland is a good place to do business. That sentiment, from the perspective of SMEs, seems also to be falling on deaf ears.
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