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Why experts see storm clouds over the economy

By June 17, 2022No Comments

The beginning of the pandemic in 2020 brought with it an end to years of bullish economic growth.

As Ireland headed into the general election, the economy was in rude health. Predictions were bright. Nobody predicted two years of Covid turbulence, followed swiftly by war in our neighbourhood.

But, though Covid restrictions have eased, the tail of the so-called V-shaped economic recovery is no longer climbing.

Forecasting at the moment is difficult, but the storm clouds over the economy are clear to see.

There is a cost-of-living crisis fueled by soaring inflation. Interest rates are on the rise again. And the war in Ukraine is casting a pall over global trade.

Last week, the European Central Bank began to wind down its mammoth bond-buying programme, which had kept borrowing costs low for even the most indebted eurozone countries.

Hoping to combat inflation, it also pencilled in two interest rates hikes for later this summer.

“We’re already seeing it in terms of Italian government bonds that are rising worryingly fast. That Euro crisis was smouldering away for more than ten years, that could reignite,” Dan O’Brien, the chief economist with the Institute of International and European Affairs, told Prime Time.

The Covid economy itself was confounding at times. Only last November, a single Bitcoin was trading for $70,000.

A month later, we bought €100 for a Prime Time report on cryptocurrencies. That investment is now worth just over €42.

At the time, enthusiasts told us that crypto was an inflation buster, a route away from the tyranny of central banks – but the value of cryptocurrencies have only plummeted as inflation continues to rise.

It may simply be the case that there is now no safe place to hide – no umbrella sturdy enough to weather this storm.

The R-word has once again began to make its way into current affairs discussions, though economist Megan Greene told Prime Time that, while a recession is not necessarily imminent, she sees a strong chance of major global economies beginning to contract – perhaps a year or more from now.

“Everyone is facing a cost-of-living crisis. There’s nothing central banks can do about high energy costs or high food costs,” she said.

On Thursday, a report by the Economic and Social Research Institute (ESRI) estimated that a third of Irish households are now in fuel poverty, the highest figure on record.

Families are hurting now and already making difficult decisions about their own finances.

The report’s contents sparked sharp exchanges in the Dáil between Tánaiste Leo Varadkar and Sinn Féin’s finance spokesperson, Pearse Doherty.

The challenge for the Government in the short term is maintaining the balance between protecting the economy and protecting vulnerable families from soaring inflation, a delicate highwire act.

It’s a challenge that speaks of difficult political decisions to come.

Article Source – Why experts see storm clouds over the economy – RTE – Conor Wilson

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