What is the Government Thinking? Is it Thinking?

It is difficult at times to understand what the Government is at.  The weekend papers were full of analysis showing why growth was essential, if only to avoid another banking crisis (the IMF has warned of a €16 billion black hole if growth does not return to the economy).  And yet Minister Brendan Howlin is  threatening a 7 percent across the board-cuts in public sector wages if workers don’t vote for the current pay-cut proposals.  There is nothing more certain to ensure we don’t return to growth than to cut wages.

We’re back in recession, according to the CSO (though you wouldn’t know this from reading media commentary which claims growth is on target).  This occurred in the latter half of last year – the latest period we have data for.  So what’s been happening so far this year?  Are there signs of recovery on the horizon?

  • Retail Sales Index has fallen in the first two months of this year.
  • Industrial production is down (though there was a marginal increase in February).
  • Property prices are back in decline – having fallen in each of the last three months.
  • Manufacturing exports (which makes up most of our exports) fell in January by an annual 17 percent in value.
  • New vehicles licensed are down in the first two months by 14 percent over the first two months last year.
  • The Monthly Services Index fell in both January and February of this year.

The Live Register has fallen by 3,000 in the first three months of this year but how much of this is due to people moving into labour activation schemes, returning to education or just emigrating we don’t know.

So, we returned to recession late last year.  In the first two months this year important indicators are moving downwards.  This may not continue, but with warnings about a tough year for exports, with a range of budgetary measures yet to hit in full (property tax, spending cuts) – the economy will struggle.

So what does the Government do with this tinderbox of an economy?  It throws the firecracker of a significant pay cut on to the pile – with all the implications for the consumer economy, arrears and tax revenue.

And they are threatening a cut that the ESRI shows is the least effective in reducing the deficit.

It is difficult to fathom what the Government is up to – unless they are determined to reduce the public sector regardless of the damage it will have on workers, the private sector and the economy at large.  In other words, it only makes sense at an ideological level.  Because in economic terms, it is madness.

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