The Economy of Republic of Ireland - Essay Example

Introduction The Republic of Ireland's economy has been synonymous to a rollercoaster ride over the past decade. In the 1980s Ireland was known as one of the poorest countries in Europe. However, In the 90s until 2001, the economy rapidly gained mileage and became one of the most successful economies. At that time, it experienced an economic boom called the 'Celtic Tiger'. Most people claim that this was brought about by their free markets through corporate taxation, EU membership, restraint in government spending, low cost labour markets and investments in higher education. However, this economic boom started slowing down in 2001, two years later it resumed and then in 2006 it slowed down again. Efforts in this essay will be directed towards the post 'Celtic tiger' years. (O'Kane, 2007) Success of Ireland's government in running the economy over the past three years Economic growth Between the years 2005 and 2006, the government was successful in maintaining economic growth. However, after 2006 to 2008, there was a reduction in the economy and there are numerous factors that caused these increase and reduction. Between 2005 and 2006, the economy hade resurgence because the government dealt with some of the problems the country had encountered before and this was aided by some external factors. At that time, (2005-2006), the rate of economic growth in Ireland was over four percent while other countries such as France, Germany and Italy in the European Union had economic growth rates of between one percent and three percent. Ireland had been struggling with Foot and Mouth Disease at a certain point but this was dealt with accordingly and by 2005 and 2006, the problem had been eradicated thus boosting sales in the primary sector. (Clinch et al, 2008) Another factor that contributed to this economic growth in the first year under analysis could be because of increases in property values. Consequently, there was greater employment in the construction sector. But other external factors also contributed to the high economic growth rate. Information technology was affected by the global recovery since previously there had been some decreases in technological demand after the bursting of the technology bubble. Ireland is responsible for a quarter of the personalised computers manufactured in Europe. It also produces Apple, IBM, and HP makes. Therefore technology is a crucial factor in Ireland's economy. Ireland was a strong economic partner to the United States; therefore any factors affecting its partnmers were likely to trickle down to the country. Four years ago, the US had experienced the September eleven attacks, but by 2005, this had reversed and led to US' economic recovery. The government also encouraged further investments in industry, science and technology between 2005 and 2006. This was seen by the numerous international firms that have set up branches in Ireland. One such company is Google; others are Intel, Abbott Laboratories and Bell Labs. In line with these developments, the Ireland government decide to establish a body known as Science Foundation Ireland which was formed to assist science bodies in the Republic. The government had created an SSIA savings scheme and funds had matured. Consumers had been cushioned in their expenditure and this boosted growth in the retail sector. (CIA, 2006) But in the years 2006 and 2008, there has been resurgence in economic growth. This could be as a result of a recession in property values. Because of availability of labour and growing demand for homes after the Celtic Tiger years, the Republic started building homes aggressively. By 2006, homes had reached 90, 000 which is almost half of what the UK has yet the ratio of populations between the UK and Ireland is 15:1. This means that by 2007 and 2008, there were excess homes compared to the demand. Rent declined and there was less income coming from that sector. Another factor that led to this decrease in economic growth was the expansion of the European Union. During 2007, Romania and Bulgaria entered the EU yet just three years ago, some ten Eastern European countries entered the union. Consequently, there was increased competition in the Union. All these countries had access to the same export markets that Ireland was trying to tap. That is why the economy did not do very well between 2007 and 2008. The economic pressures were felt mostly in the industrial sector; there was an influx of immigrant workers into Ireland's labour market and they caused saturation in the semi skilled and unskilled sectors. Problems also arose when business was being transferred to some of those new EU countries such as Poland. An accountancy firm like Phillips outsourced its activities to Poland and this denied the Irish a chance of harnessing hundreds of jobs offered by the Company. From 2006 all the way to 2008, there have been decreases in Foreign Direct Investment and the government should do something to reverse this trend. (Burke, 2008) Some other external factors could also have caused this decrease. For example, the country is a heavy dependent of foreign energy. It has exhausted its own domestic supply of hydroelectricity and peat for energy. Consequently, it is subject to the global market forces such as global warming and lack of security in the supply side. There is also a need for the country's government to come up with a strategy for producing their own energy suppliers. One particularly promising area is wind power; already five percent of the country's domestic supply is covered by this form of energy. The government is also spending substantial amounts of its revenue on unemployment benefits. Ireland is reputed as the country with the highest rates of jobseeker allowances. It pays three times as much income to those jobseekers in comparison to other the United Kingdom and other countries in the EU. Besides this, there are numerous gaps between the poor and rich in the Republic of Ireland. Wealth distribution needs to be improved if the country wishes to change these economic decreases. (Feehan, 2007) Inflation rate in Ireland By the end of the year 2006, inflation rates were found to be four percent and this was an increase from the amounts found during the previous year by two point five percent. Consequently, the other years also saw increases in inflation rates in correspondence to the relatively low economic growth rate. In Ireland, Inflation is determined by CPI figures where CPI denotes Consumer Price Index. Before inflation rates are determined in Ireland, a National Survey is carried out. This is done in order to determine which household items take greater precedence compared to other types. Then those items are classified based on their weight. Afterwards, their CPI is determined depending on what the prices of that commodity were during the previous year. This is normally synonymous with wages. If the wages received are not complementary to the prices of commodities, then there will be higher chances of buying more commodities. Consequently, there will be higher inflation if money looses purchasing power. This is what has been happening over the past two years due to the reasons mentioned above. It should however be noted that inflation rate has not been that bad in comparison to what other countries in the European Union have. Unemployment Unemployment in Ireland has always been relatively low in this decade. During the years 2005 and 2006, the percentage was about 4.3. Presently, the levels are still near that figure but have increased slightly to about four point five percentage. The reason for this slight increase in percentages could be because of the accession of some Eastern European countries into the Ireland economy. Initially, this was something beneficial to the country because there were many employment gaps. (O'Hearn, 2007) However, with time, some of these immigrants have dominated certain industries such as construction and manufacturing sectors where there is a greet need for unskilled labour. Consequently, natives have been left out of these arrangements. Those who had specialised in those areas dominated by immigrants are not left with other alternatives. Eventually the overall effect has manifested itself in the increased unemployment rates. Another factor that could have caused greater levels of unemployment between 2007 and 2008 could be the fcat that there has been decreased foreign direct Investment. A long term, partner like the United States is now looking at other viable markets within the European Union. This situation is made worse by the fact that there are no working permits imposed on the new immigrant workers. On top of that, the government of Ireland gives very generous amounts of unemployment benefits. In the year 2007, unemployment benefits were 181.80 Euros while the ones offered in the United Kingdom are seventy one euros. Consequently, those who are unemployed may not feel obliged to seek jobs since they are already covered by their system. The government of Ireland also spends substantial amounts on the payment of rent supplements for their citizens on welfare. This means that much still has to be done to increase the morale for job seeking within this country. Besides these, inequality levels within Ireland have increased from 2007 to 2008; consequently, unemployment levels will also be affected by those inequalities. There were also imbalances in the construction sector with the government concentrating more in that industry than in others. It has led to greater output than demand in the past two years. This means that most of the labour demand in that industry has also gone down. Consequently, there is a need for placement of the excess labour into another sector. Since this has not been done yet, there are still high cases of unemployment compared to some of the years in the Celtic Tiger period. Balance of payment This is representation of Ireland's Balance of payments as indicated by the International Monetary Fund in the year 2007 Balance of Payment in Ireland Current Account -1,043 Balance on goods 30,003 Balance on services -14,659 Balance on income -16,865 Current transfers 477 Capital Account 598 Financial Account 37 Direct investment abroad -5,405 Direct investment in Ireland 9,865 Portfolio investment assets -108,535 Portfolio investment liabilities 91,128 Other investment assets -12,101 Other investment liabilities 25,033 Net Errors and Omissions 803 Reserves and Related Items -395 Source; Encyclopedia of the nations; retrieved from; Ireland Balance of Paymentshttp://www.nationsencyclopedia.com/forum/ accessed on 22April 2008 As it can be seen from the table above the amount of exports are not in surplus as they were in the Celtic Tiger years. Also, imports have been high in the country and this could be the reason why the balance of payment has reached that amount. The reason for this is that most people in the Republic of Ireland increased their purchasing power. This led to greater demand for luxury goods and services. But because Ireland does not focus on most of these luxury goods and services, it had to import them. Therefore imports exceeded exports thus leading to higher balance of payments in 2007 than in the previous year. Within the same year, it was also reported that the levels of exports were slightly higher than they were in other years. This is indicative of the fact that their trading partners were a bit receptive. In the year 2004, the global economy was undergoing recession, however, two years later, it has improved and this has favoured exporting activities for Ireland. Exports are much less now in 2008 than they were in 2006. Demand and supply policies The government has tried in the organisation of good policies so as to influence demand and supply in the Republic. First of all, it has created amalgamated science bodies that will help in the innovation sector. This is quite instrumental in the coordination of innovative services offered by the nation. On top of that, there is a need for greater levels of government control in innovation endeavours rather than leaving the various competitors to be influenced by market forces. Through the formation of Science Foundation Ireland, the country has dealt with the demand for greater productivity. (Peadar, 2008) Demand in the labour market has also been met adequately through the introduction of a new green card policy. The purpose of this policy is to fill in the gaps that are currently present in the skilled-workers sector. Most of the immigrant who entered Ireland helped the country deal with its semiskilled areas but the skilled area had some gaps. The green card was designed for non-European Union workers who may be highly qualified/ have high skills and who are interested in working in Ireland. They are not subjected to similar waiting periods as other immigrants and this has helped boost the labour market specifically in terms of skills. The government has not given surpluses to the housing sector consequently; most of the housing prices have gone down over the past three years. This is part of the government's demand-supply policy that should be improved. In line with this, the government has not boosted a lot of competition in its markets. This could be achieved through improvements in research and education. Conclusion The Republic of Ireland had a boom before the past three years; it is now beginning to feel the pinch of some of the excesses it made during that boom such as housing and energy supplies. This could be the reason why the economy has not grown as much as it did before 2006. The government has not been as effective as it was before in sheltering the country from some of these economic downturns. (O'Grada, 2006) Reference: O'Kane, Brian (2007): Starting a business in Ireland; Oak Tree Publishing O'Grada, C. (2006): Rocky Road: Irish Economy since Independence - Manchester University Press O'Hearn, D. (2007): The Atlantic Economy: Britain, the US and Ireland - Manchester University Press, 2001. ISBN 0-7190-5974-7 Burke, E. (2008): Enterprise and the Irish Economy - Oak Tree Press in association with Graduate School of Business, University College Dublin CIA (2006): Ireland the World Fact book; retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ei.html accessed on 22 April 2008 Feehan, J. (2007): The Atlas of the Irish Rural Landscape; Cork University Press Coleman, M. (2006): House Prices Hang over a Sloping Hillside; Longman Publishers Peadar, K. (2008): The Celtic Tiger In Distress: Growth with Inequality in Ireland; Journal for National University of Ireland Clinch, F. et al (2008): After the Celtic Tiger: Challenges Ahead; University of Dublin Publishers Read More