Can the government rebuild Ireland's reputation abroad?

The task facing the incoming government is not straightforward or easy, according to Friends First chief economist, Jim Power. The economy is still struggling to emerge from the deepest recession in the country's history, the public finances are in an unsustainable position, debt is creating massive difficulties for the personal sector, the banking sector is still in deep crisis and Ireland's international reputation has been very badly damaged, warned Power, at the publication of the Friends First Quarterly Economic Outlook. According to the Friends First economist, there are some positive elements in the real economy. The export performance is good, the manufacturing side of the economy is doing well, and while consumer spending is very weak, the personal sector is engaging in substantial precautionary saving. At one level, the restoration of competitiveness and reform of public expenditure should get economic growth back on track eventually. However, when one superimposes the banking issue on top of the real economy, it becomes very apparent that there is a massive and probably insurmountable problem facing the Irish economy, he said. According to Jim Power, it is quite clear what the key priorities for the new government should be: • The creation of a sustainable public finance situation • The creation of a more effective and affordable public sector • The restoration of a functioning banking system • A continuation of the push to make the economy more competitive • Addressing the personal debt crisis • The restoration of consumer confidence • The creation of employment, and • Rebuilding the tarnished international reputation of the country. "Employment creation has to be the key priority and the only way to create sustainable employment is through generating economic activity. The success or failure of this government should be assessed two years into its lifetime at the earliest, and mainly by reference to the number of people engaged in real and sustainable employment in the economy at that stage," said Power. According to the Friends First quarterly economic survey, conducted by Empathy Research, 74 per cent of Leinster participants said their spending had decreased since last year. The main areas of decreased spend were eating out (92 per cent) and entertainment (89 per cent) followed by holidays (75 per cent). A further decline in personal disposable incomes will occur in 2011, due to a combination of personal tax increases, cutbacks in government expenditure, ongoing downward pressure on wages and further job losses. In addition, the cost of living is increasing again due to factors such as energy and fuel costs, health insurance, dwelling insurance and mortgage costs. Alarmingly, 33 per cent of Leinster people said they had reduced spending on heating. Consumer price inflation is being pushed upwards by mortgage costs, electricity, gas and other fuels, motor fuel, airfares, dwelling insurance and health insurance costs and this trend will continue. Mortgage costs will rise further and will be exacerbated by the increasingly likely hike in official ECB interest rates; more expensive dwelling insurance on the back of a surge in house break-ins and weather-related claims; higher fuel and transport costs due to the spike in oil prices; and higher food prices as a result of the ongoing upward trend in global food commodity prices. The fundamentals of the Irish housing and mortgage market are still weak and are unlikely to get significantly better any time soon. The impact of Nama on the market in terms of fire-sale prices, general sales activities and the completion of unfinished estates will have a fundamental bearing on the market into the medium term. Meanwhile, the market looks set to remain weak in 2011, said Jim Power. Average prices could fall by around five per cent and completions could be as low as 9,000.