The Irish Economy - Worrying Signs?

ronbyrne2005

Gegerty wrote:

The price of oil will break our economy before anything else does.

nonsense

Gegerty

ronbyrne2005 wrote:

nonsense

Pres tell ronbyrne? Because it wasn't in the rte 20 years on program that you've blatantly paraphrased above?

ronbyrne2005

Theres plenty of oil left and even at current price levels the world economy has grown strongly. if prices remain high people/companies will be more likely to develop/invest in/use alternatives and these alternatives will become commercially available,the market will ensure the oil price wont wreck our/world economy by itself

ronbyrne2005

http://www.rte.ie/business/2006/0627/jobs.html
more jobs leaving our shores.

daveirl

This post has been deleted.

mikemac

Excellent article Daveirl and makes for scary reading

Pa ElGrande

Gegerty wrote:

The price of oil will break our economy before anything else does.

ronbyrne2005 wrote:

nonsense

I.M.O. Excess debt and unemployment will break us first.

Oil and gas are one of several factor's that has the potential to break our economy in a major way. One slide in the recent permanent tsb report that caught my attention is how our dependance on oil and gas as a primary energy source has increased substantially in the last ten years.

We generally experience long commute times and major traffic conjestion. The public transport infrastructure outside Dublin is so poor, you need a car if you live outside Dublin. One of the funniest scenes that I see almost every day is a queue of SUV's trying to enter one particular Montessori school in Dublin 4, each of these vehicles carries one child passenger. If anything sums up extravagence and waste of energy, this scene is it.
When was the last time you had to queue at a petrol station, you're going to get used to it. I saw two more petrol stations being phased out over the past fortnight, there are now only three left on my route to work, and by the end of the year that will be down to one.

Anyone think hosting web sites like boards.ie is going to get cheaper? One of the major problems data center managers are faced with is rising electricity bills, faster processors give out more heat energy, requiring more air conditioning, driving up costs further. Not that I mind, server consolidation projects are keeping me busy.

How about the Kyoto protocol? Its dead

This leads to the pending reality of peak oil, meaning that yields from oil fields where the cost of extraction is cheap are dropping and there are no major finds coming on stream, unless someone finds a major oil field soon, oil prices are only going up. Don't forget to factor in both China and India (2 billion people) whose demand for energy is increasing as their huge economic growth continues, leading to a demand for yet more oil and gas.

This is what the Iraq war is about, the USA has to secure accesss to cheap oil to try ensure its and the dollar's survival. This is why Russia is reasserting itself on the world stage. This is why China is securing exclusive access to oil and mineral resources all over the world. Already four-fifths of the world's oil supply comes from fields discovered before 1970 and even finding a field as large as Ghawar in Saudi Arabia, the world's largest, would only meet global demand for another 10 years.

We will experience $100 ar oil in our lifetime, this is certain, and the transition in our society will not be without pain (and gain for some). We don't currently have a plan B.

permanent tsb House Price Index 10 Year Review
http://www.permanenttsb.ie/pdf/10_year_review.pdf

The permanent tsb House Price Index, 1996-2005 David Duffy ESRI
http://www.permanenttsb.ie/pdf/ESRI_House_...6_%20Review.pdf

Kuwait's biggest field starts to run out of oil
http://www.ameinfo.com/71519.html

South Korea has 7 billion to buy major oil field abroad
http://au.news.yahoo.com/060615/19/ze84.html

The Saudi Arabian Oil Miracle
http://www.csis.org/media/csis/events/040224_simmons.pdf
Audio to go with above presentation.
http://www.visualcommunications.com/csis/energy/20040224_global_oil.m3u

Association for the study of Peak Oil & Gas, Ireland
http://www.peakoil.ie/

Saudi Arabia – Can It Deliver? (Thursday June 29th 2006 17.00 GMT)
https://aspo-ireland.org/bookingForm_JZ.php

The Kyoto Protocol is Dead
http://www.nodnc.com/modules.php?name=Content&pa=showpage&pid=95

A realtor's view from Hubbert's Peak
http://www.energybulletin.net/17535.html

Hubbert peak theory
http://en.wikipedia.org/wiki/Peak_oil

Trouble in the World's Largest Oil Field-Ghawar
http://www.energybulletin.net/1269.html

ronbyrne2005

daveirl wrote:

This post has been deleted.

good article.i know 250 jobs lost aint much but then you have indirect jobs which make it 500 and its an indicator of things to come.

justfortherecor

We're just in the midst of a bubble. It all depends on whether we allow that bubble to burst or see a controlled deflation of it. The main indicator of this is the housing market; i think we're all fairly agreed that prices are at inflated levels at the moment. There remains a lot of speculative investment in property and worryingly people seem content to borrow large amounts of easy credit from banks to invest in this sector.

I see Irelands case as being reminiscent of Japan in the 1980s, albeit on a smaller scale of course. A few similarities include:

1.A massively inflated property market with a lot of people exposed if it crashes.

2.Banks making record profits on the back of providing excessive amounts of easy credit (pretty much an economy awash with cheap capital) - Remember when Japanese banks were touted as the 'biggest' in the world and then became laughing stocks?

3.Unrealistically high levels for the national indexes - Nikkei 38,000 before it crashed! I believe the Iseq is also inflated but, of course, not as much.

One final point: When the Japanese bubble finally did burst it was potentially disastrous but the Japanese economy had the 'luxury' of a strong indigenous manufacturing industry and a history of strong saving amongst the general population (correct me if Im wrong but I think they have the highest levels of savings per capita, even when in recent times they were getting no interest on these). These factors helped it to steady itself and we have seen the Japanese economy slowly begin to grow again.

Does Ireland have these to fall back on if the economy does 'burst'? I personally dont think it will burst but it will certainly go through a correctional period - how rapid though remains to be seen.

Indeed interesting times ahead.

soma

justfortherecor wrote:

One final point: When the Japanese bubble finally did burst it was potentially disastrous but the Japanese economy had the 'luxury' of a strong indigenous manufacturing industry and a history of strong saving amongst the general population

(Possibly) more importantly, they controlled their own interest rates and were able to slash interest rates to zero. We could end up in the situation of rising interest rates during a recession.. ouch..

Supercell

soma wrote:

(Possibly) more importantly, they controlled their own interest rates and were able to slash interest rates to zero. We could end up in the situation of rising interest rates during a recession.. ouch..

If/when that happens I can see our wise polititions leaving the euro zone with cries of "sure we could never have seen something like this happening!!"...

Pa ElGrande

The boards of 26 credit unions around the country have been asked by the Financial Regulator to examine their loan books to see whether they need to take action to curb high levels of bad debt. In an interview with the Irish Times, chief executive of the Financial Regulator Pat Neary said figures provided by the credit unions were serious enough for him to ask questions but he did not want to cause panic.

Irish League of Credit Unions chief executive Liam O'Dwyer said he would not be concerned about the report. He said the rate of bad debt provision in 535 credit unions around the country was 'tiny'- €37m from a total loan book of €7 billion, representing 0.47%. He said credit unions did their business on a 'very sound footing', and the ILCU ensured that they stuck to their guidelines.

Mr O'Dwyer said credit unions were restricted to a particular type of short-term lending under current legislation, which the ILCU was trying to change.

ILCU CHIEF SHRUGS OFF PROBE REPORT
http://www.rte.ie/business/2006/0630/mibusiness.html

In an interview in one of this morning's newspapers, the Financial Regulator has indicated it has written to the boards of directors of 26 credit unions to examine what action they should take to deal with high levels of bad debts. The have to respond by the end of the summer. The regulator indicates that figures provided by these credit unions raised serious issues for them. This development follows the release a few weeks ago of a confidential report for the Irish League of Credit Unions indicating that many credit unions are ignoring mounting credit problems among their members. The report indicates that the delinquency ratio in almost three-quarters of the 448 credit unions analysed in 2003 was above the league's guideline target of 5% and that some credit unions have very significant adverse ratios. We commented on this before but this report has a number of implications. Firstly, it's a bit of a double edged sword on the state of credit quality in Ireland.

The NPLs ratio in the domestic operation of the Irish banks has been very benign. Bad debts to risk weighted assets last year averaged 17bps at the two main banks. We anticipate this will be relatively flat over the next two years due to the SSIA roll-off. The adverse ratios in the credit unions probably indicate two things: union members feel less obliged to fall into arrears with the banks and controls may well be more lax in the credit unions.
Nevertheless, the revelation does indicate that the underlying credit environment may not be as benign as the data from the banks at first indicates. However, we feel our 47bps sustainable charge in our AIB and BOI valuation models gives us huge coverage in our valuations.

Elsewhere, the credit unions have been making shapes recently to enter the mortgage market - it is currently against their charter rules (if memory serves me right, I don't think they can make loans over 10 years in length). This looks more difficult to justify against this backdrop, and at a minimum may force some of their banking partners (IIB and EBS for instance), to review their relationships with the credit unions, a positive point we think for the main banks.

Credit Unions
Analyst: Eamonn Hughes
http://www.goodbody.ie/news/morn.html

Have the Credit Unions been lax with their lending criteria and do they really have mounting bad debts?

Pa ElGrande

The level of debt in Ireland is increasing at its fastest rate in more than six years, according to figures published by the Central Bank today.

The bank said the total amount of money owed by private citizens increased by 29.8% in the 12 months to May of this year, the highest rate since March 2000.

A total of €6.6bn was borrowed during the month of May alone, pushing total debts up to €282.8bn.

The amount owed in mortgages increased by around €2.5bn last month, the amount owed in bank loans was up €3.5bn and overdrafts were up €862m.

Debt levels increasing at fastest rate in six years
http://www.breakingnews.ie/2006/06/30/story265655.html

May '06 Monthly Statistics
http://www.centralbank.ie/data/MonthStatFiles/May%20Stats%202006.pdf

We are going through a boom period now - so who's actually making money?

Pa ElGrande

Figures released last week put our wealth at around €700 billion, as soaring house prices make millionaires of thousands of home owners. These people are Ireland’s accidental millionaires - people who never thought that they would become wildly rich when they bought their semi-d in the 1970s and 1980s.The rate of increase in their wealth is doubling every year, as house prices continue to soar.

Even after mortgages of €100 billion are deducted, the country’s housing stock is worth €400 billion, equivalent to €100,000 for every man, woman and child in the country.
<snip>
How is this consumer inferno being financed? By borrowing from other people. Again, April is the latest month for which we have figures. Borrowing rose by 29.6 per cent in the fool’s month. This is the highest rate since March 2000, surpassing the previous peak of 29.4 per cent in October 2005 and February 2006. It brings the total indebtedness of the nation to €276.2 billion.
<snip>
Why did permissions for first time houses fall to 16,454 new houses from 18,913 in the same period last year - a decrease of 13 per cent? Or permissions for apartments fall from 6,437 last year to 6,070 in the first quarter of 2006 - a 5.7 per cent fall?
<snip>
So either we will experience widespread unemployment, a fall in real wages or falling property prices or - more probably - a combination of all of these. Economically, there is no other option. We can continue in our heavily-borrowed dream world for a bit longer, but with global interest rates on the way up, that avenue will soon be closed off.

In any event, the more we postpone this economic eventuality by hyper-borrowing, the worse the end game will be. All the while, our grey market expands and Ireland’s Jagger generation continues to live it up. Meanwhile, the ones who pay for it all - the under-30s Stakhanovites - toil away in the bowels of the boom.

Our political class (the vast majority of them over 50) doesn’t seem to care. Is it any wonder that the under-30s don’t vote?

Our debt-financed lifestyle is just staving off the inevitable
http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID%20MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp

Despite ongoing interest rate rises, Irish consumers continue to borrow like there is no tomorrow. Borrowing growth has reached its highest level since March 2000, and personal debt now stands at €283 billion, according to figures released this weekend by the Central Bank.

Private sector credit - which includes residential mortgages, personal loans, credit cards and overdrafts - increased by29 .8 per cent over the past year. For the first time since December, growth in non-mortgage credit, such as loans and overdrafts, exceeded the increase in mortgage credit.

The Central Bank statistics were released after a week of more worrying news for Irish borrowers. The European Central Bank (ECB) hinted that it could raise its interest rate again as early as Thursday, even though many homeowners will barely be coming to terms with last month’s rise. The ECB rate, which determines how much interest you pay on your mortgage, stands at 2.75 per cent, compared to 2 per cent three years ago.

‘‘Markets had previously assumed that the ECB rate would next move by0 .25 percentage points on August 31; now traders aren’t so sure,” said Niall Dunne, corporate strategist with Ulster Bank. ‘‘Various members of the ECB governing council have independently warned over the last week that the bank is now willing to hike more aggressively if necessary. There’s now a very real risk of a rate hike this week.”
<snip>
However, about 40 per cent of MABS’ clients are now middle class, according to spokesman Michael Culloty.

‘‘They us ually find themselves in difficulty b ecause of a change in life circumstances,” said Culloty. Alan McQuaid, chief economist with Dublin stockbrokers Bloxhams, said he was concerned that people earning up to €80,000 should be worried about debt.

‘‘These people have taken out massive mortgages, and interest rates keep going up,” said McQuaid. ‘‘Many people who took out large loans never saw a rate rise before last December.”
<snip>
‘‘Because the past few rate rises have crept up at a quarter of a percentage point each time, people are not taking notice,” said James Treacy, managing director of Business Pro. ‘‘However, in a year’s time, people will realise that their mortgage repayments have gone up by 40 per cent. That’s when the rate rises will really hit home.”

Borrowers out of their depth
http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=MONEY-qqqs=themarket-qqqid=15374-qqqx=1.asp

Falling planning permissions are a leading indicator of falling construction output in the future, this means in 18 months (or sooner) we will start seeing decreases in the numbers employed in the construction sector. Interest rates are also rising and the effects are already starting to be felt by people with mortgages, this will impact on consumer spending. The higher interest rates will also reduce the amount people can borrow, so borrowing begins to contract, the current bubbles days are numbered.

DublinWriter

lomb wrote:

point me to a fews decent new developments in dublin 1-24 please that are under 700 grand. its all basically high density cack, it started in the late 90s, 8 houses-12 houses an acre, now its 500 per acre. u call 45 square meters without parking for 450 grand sustainable living in a concrete square 20 meters off the ground reasonable?

Yes Lomb-sir, once again you 'drill-down' to the root of the issue (sorry, couldn't help it!).

Looking at where I grew up, Baldoyle, and the recent development there ("The Coast") is just like Lucan; housing estate build upon housing estate and you're not even in walking distance of a Spar.

When I bought in Meath out beyond Ashbourne a couple of years back, people thought I was nuts. But guess what? My average commute time to the city centre from Meath is 30 mins as opposed to the average commute time of an hour that I had from Dublin 13.

Everything here is walkable to, including a restaurant chasing a Mitchelin star, a decent bistro, several fine pubs, one of the best pizarias I've ever known (and I've worked in Italy!), a barbers and a dry cleaner who's half-the-price of any comparable outfit in Dublin.

I miss nothing about Dublin, except for the rare ocassion where ex-collegues want to meet in the city-centre for drinks and it used to be very easy to roll home.

I guess what I'm trying to say it that sometimes it's not all about location, location, location (i.e. Dublin).

I remember listening to one particular episode of the Joe Duffy show about a year ago where a guy said that the walls in his particular Blanchardstown apartment complex where so thinly constructed that he could actually hear if his neighbour was cooking sausages in the mornings.

whizzbang

Are hired goons (Debt collectors) the next big business in Ireland? Are we due a golden age in the Repo business? "One that will never end" (to quote the Simpsons )

Cantab.

DublinWriter wrote:

When I bought in Meath out beyond Ashbourne a couple of years back, people thought I was nuts. But guess what? My average commute time to the city centre from Meath is 30 mins as opposed to the average commute time of an hour that I had from Dublin 13.

What do you drive, a helicopter?

DublinWriter wrote:

I guess what I'm trying to say it that sometimes it's not all about location, location, location (i.e. Dublin).

Is this new thinking in the 3 Ls of property economics?

DublinWriter wrote:

I remember listening to one particular episode of the Joe Duffy show about a year ago where a guy said that the walls in his particular Blanchardstown apartment complex where so thinly constructed that he could actually hear if his neighbour was cooking sausages in the mornings.

Wouldn't surprise me... I would have serious questions about the quality of some of the generic glasshouses with fancy cladding that are being slapped up. Developers are essentially selling lifestyles in attempt to gloss over the facts about poor location, lack of nearby services and poor build quality - the factors of concern when considering a property purchase.

shoegirl

I suspect that the fall in applications for planning permission is a last ditch attempt to artifically force up house prices by squeezing availability. What this will do is push prices to their absolute limit, thus maximising profitability to the development companies and building companies, before the problems with affordability and tightening of credit lines begins to bite into the bottom line.

Ironically I see that back home at the ranch in Fingal local goons (FF and one Lab councillor with a notorious past of opposing developments that later turned out to be vitally needed) tried to limit the percentage of new developments that could be affordable or social housing designated to 10%!

Sadly the council did pass the motion but removed affordable housing so there is a cap in that area now (I think its Rush or Lusk) but not affordable. So its ok if you are working and a bit short to buy at full price, but not ok to want social housing because you're on your uppers. Snobbery of the worst kind!

The other problem I see is that multinational wages have collapsed (and those who are now coming to Ireland are mostly very small operations, aside from the odd hyper low cost call centre with no sick pay and no prospects), and most of the "boom" now is concentrated in property related industries.

D'Peoples Voice

shoegirl wrote:

I suspect that the fall in applications for planning permission is a last ditch attempt to artifically force up house prices by squeezing availability. What this will do is push prices to their absolute limit, thus maximising profitability to the development companies and building companies, before the problems with affordability and tightening of credit lines begins to bite into the bottom line.

I'm not so sure, I belive that the end of Section 23 relief (urban & rural renewal schemes) are a major cause of this fall off in construciton figures.

I could be wrong, but I'd guess that as much as 20% of the houses built over the past two years were section 23. Hence the fall in supply is matched by a fall in demand, not that I'm sure you will have estate agents admitting that! Listen to all the noise surrounding the ending of Section 23 relief for any new house NOW being constructed from scratch, the noise is deafening.

If many of the foreign construction workers start heading to greener pastures, we could have a serious problem with demand in the rental sector, especially given the crackdown in the manufacturing and hospitality industries paying these people below minimum wage. Who will want them now?

Pa ElGrande

D'Peoples Voice wrote:

If many of the foreign construction workers start heading to greener pastures, we could have a serious problem with demand in the rental sector, especially given the crackdown in the manufacturing and hospitality industries paying these people below minimum wage. Who will want them now?

Read this AIB report, non-nationals do not make up a large portion of the construction employment, any downturn in this sector will have a harder effect on Irish workers.
What will happen as "investors" realise there is no capital appreciation, will sell in order to release what capital they have left, better to take a hit and put the money elsewhere, the not so savvy ones will chase the market down.
As Kenny Rogers sang "You got to know when to hold em, know when to fold em, Know when to walk away and know when to run."
Rental yields <2% are very poor for investor who bought in the last few years, soon there will be a much better return on interest from the bank (there already is in some cases). The cost of the property, maintainence & mortgage payments will also increase, while the rental market will not bear those increases to make up the shortfall. Quite a few property mangement companies will fold in Dublin, causing serious losses for those who bought the section 23 investments, these will be worthless as investment properties.
As interest rate go up, rents also go up as rental property becomes scarce (no more landlords subsidising tenants like present). Families with large mortages take in lodgers to help meet payments.

Once sentiment changes there will be a rush for the exits by investors and then crash, this will not happen overnight and it will not affect all areas evenly , but expect prices to drop to 2001/02 levels. Its not a good scenario but thats the corner we have painted ourselves.

D'Peoples Voice

Pa ElGrande wrote:

What will happen as "investors" realise there is no capital appreciation, will sell in order to release what capital they have left, better to take a hit and put the money elsewhere, the not so savvy ones will chase the market down.

Once sentiment changes there will be a rush for the exits by investors /QUOTE]
Thanks for that report, it's quite interesting, would love to know how many of those Irish people have mortgages which depend on their overtime to help repay! I know banks aren't supposed to take overtime into account for this reason but you never know!!

I was talking to a property investor who is just waiting for a FF TD to call to this door and he will go through him.:)
He's bitter that after paying stamp duty etc to the government on buying the house, he now must pay over EUR 60,000 on capital gains when he sells it.

He's contemplating holding onto the house JUST so he doesn't have to give EUR 60,000 to the government! When I mentioned to him how Labour and FG were saying for years that if they got in they would abolish interest relief for investors, he nearly lost the rag.
I think we will have a lot of very bitter investors over the next few years!
Stuck between a rock and a hard place will become the buzz words

Pa ElGrande

D'Peoples Voice wrote:

Thanks for that report, it's quite interesting, would love to know how many of those Irish people have mortgages which depend on their overtime to help repay! I know banks aren't supposed to take overtime into account for this reason but you never know!!

This article is worth reading in full about the double income trap.

‘Why Middle Class Mothers and Fathers Are Going Broke’
http://www.msnbc.msn.com/id/3079221/

D'Peoples Voice wrote:

I was talking to a property investor who is just waiting for a FF TD to call to this door and he will go through him.:)
He's bitter that after paying stamp duty etc to the government on buying the house, he now must pay over EUR 60,000 on capital gains when he sells it.

There will some very angry people under the age of fifty on all sides (investors and first time buyers ) if they ever realise they have been screwed by government housing policy.

Pa ElGrande

The ageing Irish population is threatening to put severe pressure on the country's public finances and its AAA credit rating, Standard & Poor's, the rating agency, warned on Tuesday.

The warning, which comes as a number of industrialised countries grapple with pensions crises, underlines the growing importance of age-related spending when judging the creditworthiness of government debt.

S&P said Ireland needed to put into effect concerted policy and fiscal reforms to avoid a deterioration of its public finances stemming from rises in age-related spending. Without them, Ireland's credit rating could head into the "junk" or sub-investment grade in the next couple of decades.
<snip>
But S&P said such a scenario was not a prediction and pointed out that it was "highly unlikely" that governments would allow debt and deficit burdens to spiral out of control.

Ireland rating at risk from ageing population
http://msnbc.msn.com/id/13303987/

The seeds are being not being laid right now for this to not happen.

daveirl

This post has been deleted.

lomb

[
He's bitter that after paying stamp duty etc to the government on buying the house, he now must pay over EUR 60,000 on capital gains when he sells it.

that means hes made 300 grand, and has to pay 60 leaving him with 240. no offense but that could keep someone in food for 240 years! not bad for nothing imho. it was probably rented and someone else paid the mortgage. cgt in ireland is very low, in the uk its 40% ,20% is half. its only fair that the state is paid a percentage of the profit imho for making the whole thing possible.
personally i think income tax rates need to be lowered not particularly stamp or cgt.

D'Peoples Voice

lomb wrote:

that means hes made 300 grand, and has to pay 60 leaving him with 240. it was probably rented and someone else paid the mortgage. its only fair that the state is paid a percentage of the profit imho for making the whole thing possible.

Closer to EUR 400,00 pure profit, he's been renting it since the early 80s, the level of rent was crap up until the late nineties, likewise with capital appreciation!
He's not much of a socialist, so the thought of giving more of his after-tax gains to the taxman is eating away at him!
I told him to reinvest all the money he gets from selling the house into a pension fund that invests in commerical property, at least that way, he'll get 42% of his money back off the government! I didn't dare say that when it comes to retirement, the government will take any drawdown from his pension apart from the initial 25% tax-free lump sum.

DublinWriter

D'Peoples Voice wrote:

I told him to reinvest all the money he gets from selling the house into a pension fund that invests in commerical property, at least that way, he'll get 42% of his money back off the government!

No way, too many eggs in one basket, etc. Mixed portfolios are the way to go when investing that kind of money.

daveirl

This post has been deleted.