This week the UK said goodbye to the crash as its economy officially grew bigger than the pre-crisis peak. Prime Minister David Cameron hailed a “major milestone”.
It’s undoubtedly good news. But how good? Poke the figures and a less rosy picture emerges. In absolute terms the economy is bigger, but it has taken a record time to recover. Not since the South Sea Bubble more than 300 years ago has the British economy taken so long to bounce back.
Also, factor-in population growth and we see the new peak has been achieved by the economic output of many more people.
As the Wall Street Journal pointed out: “It is worth remembering that most of the U.K.’s peers regained their pre-crisis scale many quarters ago, and that the U.K. has enjoyed much stronger population growth since the crisis hit, adding some 2.7 million people in the years between 2008 and 2014.
“What that means is that output per capita is still some way below its pre-crisis level, and the U.K.’s performance by this metric does not compare well with most other developed economies.”
Meanwhile the ESRI said this week that it expects the Irish economy to grow strongly this year and next (3% and 3.7%) with unemployment finally falling below the ten per cent rate next year.
Of course, weakness in the wider Eurozone remains a threat: news from Italy this week that it had dipped into recession not comforting. The impact of the trade sanctions between Russia and Europe has already hit share prices and will undoubtedly cause some economic pain in the west and well as east.
Where does all this leave the prospects for the Northern Ireland economy? This small region has historically been protected from the excesses of boom and bust by the vast flow of public money from UK taxpayers – plugging an annual regional deficit of around £10 billion.
But that all changed when peace, political settlement and easy credit combined to inflate an unprecedented economic bubble that went pop in spectacular style back in 2008.
The property crash in Northern Ireland was greater than in the Republic with average peak to trough falls of 57%. It’s impact – in terms of negative equity – may have been lessened by the shorter period of the boom. And ghost estates were less of a problem thanks to the tardiness of the planning system.
However, the collapse in the property market in the north became a major headache for southern taxpayers as Nama assumed a £4.5 billion portfolio of northern debt. Forget Irish unity, the south effectively owned Northern Ireland. But – sorry republicans – the South dumped the North at the first opportunity, recently selling up to American specialists Cerberus Capital Management.
The deal was hailed as good news on both sides of the border. Good for taxpayers in the Republic and good for the Northern Ireland property market which would now see the experts getting to work on managing the portfolio.
But before anyone connected to the property debt glugs too much champagne they might like to consider the name of the new owners. Cerberus was a Greek and Roman three-headed “hellhound” who guarded the entrance to the underworld preventing the dead from escaping. An appropriate beast to take charge of our zombie assets.
For added interest, the company is headed by former US Vice President Dan Quayle. It may be relevant in Ireland to recall that this is a man who famously didn’t know how to spell potato. Thankfully, its a property blight he’s here to sort.
So, despite some very good economic indicators in Northern Ireland – falling unemployment, growing employment, foreign investment wins, and private sector growth – the crash cannot be forgotten and will continue to be a factor in the years ahead.
The three-headed hellhound hasn’t yet bared its teeth, but it will be interesting to see where the bodies lie whenever Cerberus gets to work. The future of the north’s property market is now in the hands of a ruthless capitalist beast that owes its allegiance to its US owners.
It’s simply another example of where this small region’s economic destiny is determined elsewhere – Dublin, London, Brussels, New York. It may read like a list of glamorous headquarters on a perfume bottle, but it’s a testament to the powerless of Stormont to shape its own affairs.
Richard Ramsey, Chief Economist with Ulster Bank, would talk about Northern Ireland drinking from the bottle of “Southern Comfort” during the boom years: border shoppers, property investors, tourists, trade, property-related manufacturing all enjoying the benefits of the Celtic Tiger. That then became a period of sustained “Southern Discomfort” following the crash.
From Brussels, Stormont faces the implementation of new state aid rules which will impact on some of the biggest foreign direct investment projects in the region. Some nifty negotiation on the fringe of the G8 summit in Enniskillen last year appears to have won the best deal possible for the north, but change will still be painful.
In London the civil servants are currently drafting options for change post the Scottish independence referendum in September. In the likely event of a “no” vote, a more federal UK is poised to emerge. Again, the funding implications for Northern Ireland are unlikely to be positive.
The politicians at Stormont like nothing more than a good row about the past. The comfort blanket of culture wrapped around them like protesting prisoners refusing to accept the reality of their situation. That may make them feel good. It may even work for the diminishing proportion of the electorate that chooses to vote. But it does nothing to prepare Northern Ireland for the economic challenges that lie ahead.
(This article first appeared in the Sunday Business Post on the August 7th 2014)