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Dublin: 13 °C Saturday 1 November, 2014

Whose recovery is it anyway? Many left behind as the economy accelerates

Saddled with debt and facing little prospect of wage growth, many Irish people aren’t feeling the benefit of the economic turnaround.

Image: Leon Farrell/Photocall Ireland

EARLIER THIS WEEK, two very different sets of statistics about the Irish economic recovery came out.

First of all came news from Rabobank that its investors are feeling more positive about the economy than they have for four years.

In and of itself, this is not overly surprising. Investors tend to be an optimistic group. They don’t sink money into companies because they think they’re going to fail.

They’re also focused on the long term future, rather than short term problems. More importantly, they have disposable income.

Less than an hour later, the latest update of the KBC Bank Ireland consumer bank survey rattled the inboxes of journalists around the country.

Irish consumers, according to the survey, are downbeat about their economic prospects. Despite the slew of positive macroeconomic news, they don’t feel wealthier, and many expect to feel poorer still in a year’s time.

So, despite the turnaround in our economic fortunes, are we witnessing some people being left behind?

Recovery, but uneven

KBC Bank chief economist Austin Hughes is one of the authors of the consumer sentiment index.

“There’s clearly a multi-speed recovery”, he says.

Despite strong GDP growth of 2.7% in the first quarter of the year, he cautions against reading too much into that number, and extrapolating that the rising tide is lifting all boats across Irish society.

“There’s a basic problem in economics that we try and sum everything up in one number, like GDP”

The reality is that given the sort of downturn we’ve had and the sort of recovery we’re seeing, we see that the recovery varies hugely.

Where you live, what you do for a living, and how old you are is likely to have a massive impact on whether you feel that the recovery is helping you or if its seen as something that’s happening elsewhere, to other people.

Still hurting

The simple truth of the recovery is that it’s concentrated in a few sectors, with consumers in those sectors feeling very positive.

Others are beginning to feel alienated from the economy, and the narrative of recovery and redemption that is in vogue in political circles.

“It’s a recovery of those companies that are focused on exports…you are also seeing it in a very limited sense in construction, in certain areas of financial services, and in technology.”

“In a broad sense tech has been virtually recession proof (and) that influences those who provide services to tech companies too”, Hughes explains.

However, for many respondents to the KBC Bank/ESRI survey, the vigorous growth in these sectors is a foreign country.

ESRI economist David Duffy explains why people feel unaffected by the return of economic growth.

“It’s not unreasonable given the fairly moderate, if any, pressure on wages, coupled with discussion about water charges and the discussion about what adjustment might take place in the budget.”

Senior researcher in the Nevin Institute Micheál Collins agrees.

“The main thing is uncertainty. If you are the nurse and the Guard (co-habiting), you don’t feel confident about how much you’ll have next year.”

There is a sense that people don’t feel the overall upturn in the economy is helping them out, and that’s borne out by low consumer spending.

On the other hand, the wealthier investors in Rabobank’s survey have a much sunnier outlook, explains Killian Nolan, head of investment at the bank.

“What’s making them optimistic is that they are reviewing the markets and seeing what’s happening out there. They’re starting to see green shoots in Europe and elsewhere.”

Investment activity, he suggests, might even herald a good time coming for the rest of the economy.

“If you look at investment markets, they recover before the consumer market. They’re more optimistic.”

Indeed, while the KBC Bank sentiment numbers have faltered in recent months, the trend is undeniably upward.

However, for immediate future, the average consumer can’t look to the future with great confidence, argues Austin Hughes.

Someone else’s recovery

“Average wage growth is still minimal and we still have fiscal consolidation, so the penny in your pocket goes less far.”

So while the economy has been on the up, a large cadre of Irish consumers is still treading water, according to Hughes.

“In the general run of things, the average consumer in their mid 30s, where employment prospects haven’t been rising, where debt levels are significant, they’re not really feeling any better.”

For them, it certainly is someone else’s recovery.

Read: Two speed recovery underway with consumers unconvinced by economic ‘upturn’>

Read: Investor confidence in Irish economy hits four-year high>

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