Japans crisis to affect Ireland.

The horrific crisis unfolding in Japan is expected to cost the Japanese economy around $180 billion. Considering Japan is the 3rd biggest economy in the world, this is a substantial global crisis. However, for Ireland the effects might be far more visible than we realise. Ireland is the biggest exporter in the EU, per capita, to Japan and 5th biggest overall. Critically Japan is the largest net importer of food, much of which comes from Ireland. This is hardly surprising for a country of 127 million people and a relatively small land mass.

It is very likely that the events of the last few days may plunge Japan back into recession, having major knock on effects for Ireland and the wider global economy. It can’t really come at a much worse time for Ireland as our economy struggles to pull itself from depression. In 2009, Japanese exports were worth €6 billion to the Irish economy. (Recovering to 2007 levels). A dip in this figure in 2011 will continue to provide challenging conditions for an already under pressure Irish recovery.

Ireland’s recovery in itself is now under serious scrutiny as all economic indicators point towards 2011 being a year of negative growth. The most recent Central Bank bulletin predicts negative growth of 0.3% in GNP. (While expecting modest growth of 1.0% in GDP, showing that even the Multi- nationals are barely able to pull us out of recession) There is a serious worry that the real economy is not recovering fast enough. The latest unemployment figures will be key to seeing if Ireland has crucially halting the ongoing unemployment crisis. Most recent figures placed unemployment at a record high of 13.6% towards the end of 2010.

However, Central Bankers now have another key problem. Inflation is back after a short, sharp period of deflation. February 2011 saw a 2.2% annual inflation rate. The Euro-Zone as a whole is heading into choppy waters in terms of inflationary pressure. How long more can Jean Claude Trichet justify keeping the base interest rates at 1%? They have been held there since May 2009 in order to help states like Ireland emerge from their recessions. However with the German and French economies recovering faster and stronger than some weaker states, inflation must now become an issue once again. It appears that over the short-term is the ECB is willing to allow inflation to creep about the 2% target, however I believe this willingness will be relatively short-lived. This Spells further pain for Ireland. High inflation,high unemployment, an ongoing fiscal crisis and little/no monetary options will mean that Ireland is backed into a corner. It is now the duty of the new Government to find a solution, when many dread the only options remaining to us. Ireland must now consider the senior and especially subordinated bondholders it has protected for so long. The country must also review its internal commitments in terms of social welfare and health. More importantly however is that Ireland, must review its place within the single European currency. The ECB will be quick to act if it feels that Ireland is going down, for we will drag Portugal, Spain and more with us if we do! Enda Kenny & Finance Minister Michael Noonan must put our cards on the table- for otherwise our position in the Euro is surely untenable. As for the Japanese impact on all this- it can only do us harm.