Jim Power: Ireland in 2024 was pleasantly boring and staid
Conclusion Rate Farrell The Of It Had 2024, Interest Picture: Beginning Reached At Cycle Tightening Was The Leah That Its Clear
This time last year commentators were referring to the year ahead as the ‘year of the election’ and so it turned out to be.
As an economist, I have become more mindful over the years of the economic impact that political events can have. The Brexit referendum in 2016, and the first coming of Donald Trump a few months later taught us that lesson.
There have been too many elections to mention in 2024, but the significant ones from a domestic perspective were the European parliamentary elections; the UK general election; the US presidential election; and the Irish general election. The fear of many was that in an increasingly bitter, divided and polarised global geo-political environment, there would be a lurch towards right-wing or other extremism.
In the event the far right did not do quite as well in the European elections as might have been expected a couple of years ago; the UK saw the election of a Labour government with a significant majority, which promised a semblance of political stability after a decade of chaos; the Irish electorate basically voted for more of the same, slightly left of centre parties; and only the US delivered a pretty dramatic result. The second coming of Donald Trump certainly dominated discourse in the final quarter of the year, and the implications of what his policies on tax, tariffs and free trade might mean for Ireland remain to be seen, but it threatens not to be terribly pretty.
From an economic perspective, it has also been an interesting year. At the beginning of 2024, it was clear that the interest rate tightening cycle had reached its conclusion and the only question really concerned when and if central bankers around the world would start to loosen monetary policy. Interest rate cutting in general probably happened a bit sooner than expected but happen it did.
Interest rate cuts were facilitated by an ongoing decline in inflation, (although it did become more stubborn later in the year), and marked economic weakness in the Euro Zone and UK economies. Germany was particularly weak. The US economy as usual surprised on the upside and showed decent levels of resilience.
The ECB cut rates by 0.25% on four occasions – June, September, October and December. Following the December rate cut, the ECB pointed out that Euro Zone economic growth is weaker than it previously forecast. Against a background of weak growth and greater relaxation on the inflation front, the ECB should continue to ease rates in 2025.
The Bank of England cut its base rate by 0.25% at the August meeting and followed up with another 0.25% cut in November, taking the base rate down to 4.75%. It left rates unchanged at the December meeting and stated that ‘stubborn inflation will prevent it from cutting interest rates quickly.’ However, it downgraded its growth forecast, and the rate cycle should edge gradually lower over the coming months.
The Federal Reserve cut rates by 0.5% in September and 0.25% in November and December. After the December cut, the Federal Reserve revised growth and inflationary expectations upwards and dampened expectations about the pace of easing in 2025. It now expects to cut rates twice by 0.25% on each occasion.
One of the features of the world economy over the past year has been the steady decline in annual inflation rates and the persistence of tight labour markets. The tightness of labour markets is the one real factor that ensured some degree of central banker caution.
In Ireland, the economic story was certainly more upbeat. The public finances were characterised by remarkable buoyance in VAT, Income Tax and Corporation Tax in particular, which was given a major boost from the unwanted Apple tax bounty. The labour market was also very strong, with an unemployment rate of just 4.1% in November; and in the year to September, total employment in the economy increased by 98,600 or 3.7% on a year earlier to reach a new record high of 2.794 million. The employment rate, which is the share of persons in the total population aged between 15 and 64 years who are in employment, reached a record high of 75.3%.
In 2023, merchandise exports declined by 5.5%, which largely reflected a post-Covid adjustment. There was a strong rebound in 2024. In the first 10 months of the year, overall exports were up by 12.6%. Chemicals and related products accounted for 65.9% of total exports. Therein lies a significant risk for Ireland, bearing in mind what Trump might do. Ireland is characterised by massive concentration risk.
The housing market remained a significant dark cloud overhanging the country. The national residential property price index in October was 15.2% above its highest level at the peak of the property boom in April 2007. In December the ESRII warned that house prices are 8-10% over-valued. Now when did we hear that before?
The consumer side of the economy was quite challenged. Although the headline rate of inflation has fallen sharply from the highs of 2022, the average cost of living in November was 20.4% higher than in November 2020. This demonstrates the cost-of-living pressures facing consumers. This cost-of-living escalation was a key theme in a ridiculously expansionary and populist Budget 2025 and in the General Election campaign.
All in all, 2024 was a decent year for Ireland both economically and politically, particularly when we observe what is going on in a myriad of other countries around the world. Ireland in 2024 was pleasantly boring and staid.
