It is a wonder, in retrospect, that the Irish managed to maintain such a high level of economic growth despite a significant drop in consumer spending and a growing public debt burden.
The result has been an exceptionally robust economy.
But despite that success, the economy is still not well served by a high standard of living.
There are many factors that contributed to the strong economic performance.
Economists at IHS Markit and the Irish Central Bank have now published a report, “Why the Irish Have Had It So Good in the Market”, that sets out a series of explanations for the extraordinary growth.
First, it says, Ireland has a strong domestic market with strong consumer spending.
“Consumer spending is key to Ireland’s economic performance,” the report says.
The report also says that, as the country has grown its gross domestic product (GDP) by almost 6 per cent a year since 2012, this has resulted in a substantial increase in its purchasing power, which has made up for some of the slowdown in consumer demand.
Secondly, the Irish economy is relatively insulated from external shocks, as it is a country with a relatively low inflation rate, a low unemployment rate, low social welfare costs, and relatively high savings rates.
Thirdly, the report points out that there is strong demand for services in the country.
“There is no doubt that the economy was built on services.
Ireland has more than twice the number of registered nurses and a higher proportion of doctors than any other OECD country,” it says.
“This is in part due to the fact that the service sector has a relatively high level on which to build a business model.”
Fourthly, there is an unusually large amount of capital that is invested in the economy, and it can be argued that the boom in Irish companies is largely due to that.
“Ireland’s economic boom is a reflection of the fact there is a relatively large amount, if not the largest amount, of private capital in the system, with Ireland having the world’s third highest ratio of private sector debt to GDP at 3.5 per cent,” it notes.
Fifthly, it points out the country’s relatively low level of debt, which means it is able to borrow at very low rates.
“The Irish economy has been able to maintain an exceptionally low interest rate policy, which is an excellent way to stimulate the economy.”
Sixthly and finally, it notes that the Government has taken some steps to improve the countrys economic prospects.
While the economy has grown, it has been hampered by the lack of clarity over the future of the public finances, which have been the subject of a major audit.
These reforms have included increasing the capacity of public sector banks to take on debt, and allowing Irish banks to borrow from the European Central Bank.
In addition, the government has implemented the reform of the way the country deals with its trade surplus, which allows for more trade, higher imports and exports, and more spending on infrastructure.
But while the government’s reforms have been welcomed by some quarters, it is not a good indicator of the economy’s future.
Despite the improvements in economic conditions, there are a number of other problems that still remain.
Firstly, the high level the country still has to maintain its relatively low public debt, despite a large increase in the level of public spending.
“Despite an improving macroeconomic outlook, Ireland still has a high public debt level and is still in the position of having a substantial public deficit,” the IHS report says, adding that “these are significant problems for the economy”.
Secondly and perhaps more importantly, the country is still heavily dependent on the public sector for much of its economic activity, with the main source of revenue being public spending, the National Health Service (NHS).
This is because the NHS has to pay for the cost of all the other public services, including the State pension.
This means that public expenditure is a key part of Irelands budget, and while the economy may have benefited from a more robust public sector, it remains vulnerable to external shocks.
Finally, the economic growth has been a long time coming.
After the financial crisis of 2008, the Government started to shift away from a fiscal-driven growth model, which saw growth come mainly from a strong public sector and increased investment.
However, as public spending declined and the private sector shrank, the growth was less strong.
Today, the NHP has seen its annual operating surplus drop from £7.3bn in 2016 to £2.3 billion.
Furthermore, the rate of growth has fallen from 4.1 per cent in 2012 to 3.9 per cent last year.
According to the IIS, the next step in the recovery will be a return to fiscal consolidation.
With the fiscal deficit expected to rise to 6.2 per cent of GDP in 2019, the prospects for a return of the growth in public spending look bleak.