It's all good news!

gurramok

nesf wrote: »

And you are basing this statement on..

As no-one knows, not even the US themselves.

What makes the ESRI know more about the US economy than the US themselves?

nesf

gurramok wrote: »

As no-one knows, not even the US themselves.

What makes the ESRI know more about the US economy than the US themselves?

No one knows who is going to win horse races, soccer matches and GAA matches but the bookies still make a profit..

European Central Bank President Jean-Claude Trichet has warned that the end of the credit crunch is not yet in sight. He also told BBC radio the world was experiencing an 'ongoing and very significant market correction'.

http://www.rte.ie/business/2008/0519/ecb.html

So how insulated is Ireland from this world wide credit crunch?

If we accept that Ireland is going through a property crash, (definitions of which are hard to find? Anyone have a definition?), then according to this paper:
http://www.ucd.ie/economics/staff/mkelly/papers/solvency.pdf

by Professor Morgan Kelly Irish banks will suffer their own credit crunch independent of the world:

The large exposure of Irish banks to property speculators does not mean of course that
large losses are inevitable. What it does mean is that, if a crash occurs, or even if already
nervous overseas bond markets cut off liquidity to Irish banks (foreign banks have over
€400 billion on deposit with Irish banks, and hold another €200 billion of bonds), it will be
very costly to fix, dwarfing the bailout of AIB in the 1980s.

nesf

Deleted User wrote: »

http://www.rte.ie/business/2008/0519/ecb.html

So how insulated is Ireland from this world wide credit crunch?

You need to put Trichet in context. He isn't scaremongering here, he's trying to signal clearly to the markets what ECB is thinking, as from that what actions they can expect so as to calm them and keep them from getting jumpy. Setting interest rates is only part of what a central bank can do to keep things going steady. Manipulating expectations and sentiment is another of their tools.

I never said he was scaremongering?!
You say he is trying to send a clear signal. What do you think this signal is?
A rate rise? And that he is giving a kind of advance warning so they know what to expect?
Can you elaborate/clarify your post? As Im just guessing at what you mean here

nesf

Deleted User wrote: »

I never said he was scaremongering?!

I wasn't trying to imply you were. I was trying to get at how his talk sounds a lot worse when taken out of context.

Deleted User wrote: »

You say he is trying to send a clear signal. What do you think this signal is?
A rate rise? And that he is giving a kind of advance warning so they know what to expect?
Can you elaborate/clarify your post? As Im just guessing at what you mean here

Trichet is basically saying, "There will be no rate cut next time around". It's hedged, and a rate cut could happen if something very unexpected occurs but generally his language since last Autumn has been repeating that mantra over and over again in different ways. When he talks about how worried he is about inflation, he's basically saying that he doesn't want to cut rates. A rate rise on the other hand could be viewed as unlikely considering the eurodollar levels at the moment and the impact that it would have on European exports to the States.

Essentially, the ECB tries to avoid shocking the markets because confusion is generally not a good thing in the markets. The present Euro/Dollar exchange rate is priced according to the chance of a rate cut, rates staying the same and a rate rise (ignoring all other factors to keep things simple). If the markets, and businesses, feel that the ECB won't spring any surprises on them with rate changes then this gives people a better idea of what the exchange rate will be which gives businesses a better idea of what exporting to the US will be like etc.

nesf

nesf wrote: »

I wasn't trying to imply you were. I was trying to get at how his talk sounds a lot worse when taken out of context.

This is getting complicated now
hehe Im not saying you were saying I was scaremongering lol

nesf

Deleted User wrote: »

This is getting complicated now

It is complicated, that's what makes it so interesting. It's the problem with armchair economics. It's no different to me predicting how rugby games will go, I watch rugby and follow it to an extent but I've no real technical depth in my knowledge about it and really my predictions for games would be hunches at best. If I chat about rugby with one of my friends who is really into it, the lack of depth in my knowledge quickly becomes very apparent.

Économiste Monétaire

Morgan Kelly was, as he put it, "just spouting off". He didn't actually have an solid data to base his opinion on so you should take him with a pinch of salt , but he has done a paper on the boom and bust in Japan due to a property market crash which is worth a read.


Gurramok: A few points

See below report.

I said to show me where in the ESRI report not a separate report. You based your statements on the recent ESRI report and how the forecasts were 'reckless'.

Most of it is based on MNC's at a time of severe dollar weakness, thats scary.

Wait, did you just say that at a time of "severe dollar weakness" it was a bad time for MNCs? Repatriation of profits at a time of high Euro/Dollar rates. Think about that for a second.

Strong currency is not the equivalent to a strong economy and vice versa. Pick up an elementary economics book, seriously.

Also, I doubt you could quantify just how much of GDP is attributable to MNCs.

Thats what i thought you were referring to(construction only figure in CSO stat). One can't focus on one industry and ignore other industries which are dependent on that industry.

Trying to quantify just how much directly and indirectly is an estimate and not reliable figures. You cannot say definitely that a loss of X number of houses leads to X drop in GDP. You are against estimations (from the ESRI & general forecasts) so to accept them here is hypocritical.

DKM figures are based on estimates for 2007. I'll stick to CSO final numbers for 07.

You said that, i never did. I suggested around one in five, i'll dig up the precise figure when i get time.

It's only started, it will get worse as the year goes on, related to that time delay thing i had explained.

The figures are not supporting you. You tried to explain your 'time delay' hypothesis but after 18 months the figures aren't supporting you. End of.

GDP is not real national income. Strip out the MNC's profits and you get GNP which is a truer picture on what people earn.

Now see this shows glaringly that you've never even opened a basic economic theory book. GNP is GDP +/- net factor incomes from abroad, not just striping away MNC profits. GDP and GNP are not the be all and end all of people's economic well being.

As for being childish, I'm not the one claiming conspiracy theories about an Economic research institute.

Ekancone

gurramok wrote: »

Re:daithifleming
Yes, the credit crunch is affecting Ireland. Why?...Just look at the Euribor rates which Irish banks depend on getting money when they are not getting it from customer deposits.
Euribor rates have shot up since the credit crunch hit and that why the likes of new tracker mortgages have been either withdrawn or have their rates raised.
Coupled with Irish developers owe Irish banks €100bn, we have a huge domestic problem in banking as its so dependent on construction related activity.
The US had widespread mortgage fraud in its banking system and thats why a recession might be happening there.(i'm not fully convinced a fully blown recession will bite there, they are no so dependent on construction related activity like us)
We have not have had widespread mortgage fraud other than dodgy 100% mortgages being issued which is not on a similar scale to over there.

Its the domestic issues which i highlighted above which is driving the recession here.

I will get to this eventually, Im just in the middle of my final exams so I dont have time to do the research required to flatten this once and for all.

gurramok

UCD_Econ wrote: »

I said to show me where in the ESRI report not a separate report. You based your statements on the recent ESRI report and how the forecasts were 'reckless'.

The separate report reports what has happened to the economy in 2006 plus it has a forecast after that.
I do disregard that forecast just like the ESRI one as i'm giving you facts and not figures from the future.
Its the part on past performance is where to get real figures and thats whats important.

UCD_Econ wrote: »

Wait, did you just say that at a time of "severe dollar weakness" it was a bad time for MNCs? Repatriation of profits at a time of high Euro/Dollar rates. Think about that for a second.

Thats a good point, lets hope the cost of operating here does not overshadow their decisions.(I work in a MNC so it affects me)

UCD_Econ wrote: »

Strong currency is not the equivalent to a strong economy and vice versa.

Yes, a weaker currency encourages exports. It's the purchasing power of the average worker using a weaker currency is where it hits in the pocket imho.

UCD_Econ wrote: »

Also, I doubt you could quantify just how much of GDP is attributable to MNCs.

RTE among many commentators seem to think it affects it alot.

rte wrote:

The difference is made up of net factor flows, which in reality includes net profit repatriation by multinationals and interest on the foreign component of the national debt. In Ireland's case, GDP is significantly larger than GNP because of the large US multinational presence here

I sincerely doubt that there are more inflows than outflows here, there are not many Irish businesses abroad in comparison to the huge foreign corporations based here who repatriate their profits abroad.

Hence the difference between GDP and GNP numbers as described.

UCD_Econ wrote: »

Trying to quantify just how much directly and indirectly is an estimate and not reliable figures. You cannot say definitely that a loss of X number of houses leads to X drop in GDP. You are against estimations (from the ESRI & general forecasts) so to accept them here is hypocritical.

I base this(X number of houses in relation to GDP) on what has been reported in the media(they might be wrong but they cannot be all wrong?..If they are wrong, what is the correct figure?)

UCD_Econ wrote: »

DKM figures are based on estimates for 2007. I'll stick to CSO final numbers for 07.

Nope, read the summary of 2006 in review. Its in the first couple of pages, it states clearly that over 22%(24 to be precise) of GNP had been sourced from construction related activity.

UCD_Econ wrote: »

The figures are not supporting you. You tried to explain your 'time delay' hypothesis but after 18 months the figures aren't supporting you. End of.

Nope, not end of.

The April stabilisation was due to the timing of Easter in March, the CSO supports this fact. http://www.cso.ie/releasespublications/documents/labour_market/current/lreg.pdf

There was an underlying increase of 5,000 in April. http://www.businessworld.ie/livenews.htm?a=2143081

Lets see what May and June etc bring.

UCD_Econ wrote: »

GNP is GDP +/- net factor incomes from abroad, not just striping away MNC profits. GDP and GNP are not the be all and end all of people's economic well being.

Then, can you show figures of how much the MNC's affect the well being of the economy?

daithifleming wrote:

I will get to this eventually, Im just in the middle of my final exams so I dont have time to do the research required to flatten this once and for all.

Good luck, hope you pass

Économiste Monétaire

This is my last post about this because you really aren’t getting anything I’m saying and your lack of fundamental economic knowledge is beyond funny and is becoming frustrating.

The separate report reports what has happened to the economy in 2006 plus it has a forecast after that.

But you said this in your first post about the ESRI:

That article is based by a govt funded think tank is based on alot of farcical assumptions NS, especially the part about 48,000 houses, bloody hell, a sustainable economy should not be depended on the amount of houses built!!

I asked you to show me where (label them) in the report there are farcical assumptions (also to substantiate those claims) and where in the report it states your comment about how Ireland is dependent on construction. If you make a claim about a document, you should have at least read it and not just from RTE.

Have you ever attempted to infer the growth rate of an economy from mounds of data? How could you have any sane reason to say that the assumptions and variables used in the prediction figures are either reckless or farcical.

I do disregard that forecast just like the ESRI one as i'm giving you facts and not figures from the future.

You haven’t given any facts, just your opinion; please do not confuse fact from fiction. Figures from the future? They’re called forecasts. They’re dependent (as the mod said) on assumptions prevailing at the time they’re written.

Its the part on past performance is where to get real figures and thats whats important.

So basically what you’re trying to say is that an economy is static and all we need to do is look to the past because nothing ever changes, technology remains still, shocks to demand and supply never happen. Right…

Yes, a weaker currency encourages exports.

It does indeed. But a weak currency doesn’t mean that an economy is strong or not.

It's the purchasing power of the average worker using a weaker currency is where it hits in the pocket imho.

The purchasing power of an Irish worker is not reduced by a depreciation in the Euro value, a reduction in purchasing power in any fiat currency comes from inflation. The only way you could consider an appreciation of the Euro a reduction in purchasing power is through purchasing imports.

You seem to like listening to RTE a lot so just think back to the most recent coverage of any pay talks. Now, did they take into account the current Euro/Dollar exchange rate or the inflation rate when discussing future wages? Rhetorical question by the way.

RTE among many commentators seem to think it affects it alot.

I never said it didn’t matter, I said you couldn’t quantify (I.E: % of GDP) your claim that most of GDP depends on MNCs.

I sincerely doubt that there are more inflows than outflows here, there are not many Irish businesses abroad in comparison to the huge foreign corporations based here who repatriate their profits abroad.

Ugh, GDP is dependent on quantity of goods and prevailing market prices (or factor cost). When you give figures in nominal value reductions could be attributable to either a reduction in output (I.E: A recessionary gap) or a fall in prices. When you’re talking about GNP, you need to take into account factors occurring in other countries, not just our own.

It’s the factors underlying the figures you’re oblivious to.

I base this(X number of houses in relation to GDP) on what has been reported in the media

That’s just a bad idea. As you’ve observed RTE focused on the small section of the ESRI report that mentioned (barely) housing. They focus on what Joe Newbie can understand, not technical details. The figures, as I already stated, are estimates and not fact so don’t treat them in that way.

Nope, not end of.

I don’t know how many different ways I can explain this but I’ll give it another shot:

Your hypothesis: There is a time delay in unemployment, that being 18 months. The peak in housing happened around mid 2006 (June/ July)

The figures so far have been an increase from 5% in January to 5.5% in April, I’m not just talking about March to April. The doomsday scenario you were describing (considering the amount of people you said will be affected) hasn’t happened. Now I will say that the unemployment rate we’re both discussing isn’t perfect and I’m not going to say it definitely won’t happen, but so far the figures aren’t indicating in your favour.

Then, can you show figures of how much the MNC's affect the well being of the economy?

I don’t think you understood what I was saying. GDP and GNP figures and not perfect indicators of economic well being for the following reasons:

a) Leisure time is not priced in markets and therefore not reflected in GDP. Extra leisure time, like that of the 40 hour week, is a major benefit of living in a wealthy society. The increase in leisure time is due to a lower opportunity cost of leisure time and increased purchasing power of average worker’s wages.

b) Non-market economic activities such as housekeeping services and volunteer work, with a few exceptions such as government services, are omitted from GDP. The fact that these unpaid services are left out of GDP does not mean that they are unimportant.The problem is that, because there are no market prices and quantities for unpaid services, estimating their market values is very difficult.

c) Environmental quality and resource depletion are factors such as a decline in air and water from expanding a manufacturing base. Increased pollution certainly detracts from the quality of life, but because air and water are not bought and sold in markets, GDP does not reflect this downside of economic growth. The exploitation of finite natural resources also tends to be overlooked in GDP. When an oil company pumps and sells a barrel of oil, GDP increases by the value of the oil. But the fact that there is one fewer barrel of oil in the ground, waiting to be pumped sometime in the future, is not reflected in GDP. Putting a value on pollution is difficult since it often involves placing a euro value on intangibles.

d) Quality of life such as spacious, well constructed homes, good restaurants and stores, a variety of entertainment and high quality schools are reflected in GDP. However other indicators of the good life are not sold in markets such as low crime rates and minimal traffic congestion.

e) Poverty and economic inequality, GDP measures the total quantity of goods and services produced and sold in an economy, but it conveys no information about who gets to enjoy those goods and services. Two countries may have identical GDPs but differ radically in the distribution of economic welfare across the population. People’s economic satisfaction depends not only on their absolute economic position (the quantity and quality of food, clothing and shelter they have) but on what they have compared with what others have. Because GDP focuses on total production rather than on the distribution of output, it does not capture the effects of inequality.

oh my god that post you sound like a politician trying to talk around an issue
and your odd few condescending comments here and there throughout the thread sound like something from politics.ie are you a party hack or something? You dont add anything to this by doing that. No need to get wound up and "frustrated" its only the internet!

nesf

Deleted User wrote: »

http://www.rte.ie/business/2008/0519/ecb.html

So how insulated is Ireland from this world wide credit crunch?

More analysis of Trichet's comments for you: http://www.ft.com/cms/s/0/6d31d124-258a-11dd-b510-000077b07658.html

nesf

Deleted User wrote: »

oh my god that post you sound like a politician trying to talk around an issue

I've been thinking about this and I think it mainly stems from a misunderstanding about what the answers should look like rather than anyone being evasive necessarily.

A "simple" example:

Question: Do we have an oversupply of houses?

The answer you or gurramock are looking for here is a yes or a no with some gesture towards some data, but that's not the kind of answer you'd get out of UCD_Econ or myself. The question itself, in this instance, is actually flawed in my view. The first issue with it is, houses aren't homogeneous products like screws, nuts or bolts. The question "Do we have an oversupply of 3 inch nails?" is quite simply answered by going out and simply counting how many of them we have. A 3 inch nail is a 3 inch nail for the most part. You might get some difference in the type of metal used but for the purposes of economic analysis on a national level, it doesn't really matter all that much.

Now houses on the other hand are very different to that. There's no such thing as a standard house really. Each individual house and most importantly its value and/or utility is based on a number of factors such as size, location, quality of building materials, aesthetics etc. There isn't even a definitive list of these qualities really and it's open to debate what we should and should not measure in order to get an idea of the value of a house in monetary terms or in terms of how valuable it would be to a person buying it. This issue makes simple raw numbers, like the total amount of houses built this year or last year, not very informative in reality. 50 houses built in D4 are very different in value terms to 50 otherwise identical houses built in the middle of nowhere on the Kenmare peninsula. Looking at raw housing numbers doesn't tell us very much. So discussing oversupply in terms of raw numbers of homes built isn't a very good question and is hard to answer meaningfully, which if you are serious about answering questions, is a big problem.

A second point: the value attributed to houses, even when we know for definite what factors matter changes over time. Here the problem is exogenous factors (i.e. factors determined outside our system, in this case factors determined independently of the houses). Oil prices are a topical and relevant example since we're discussing a report talking about house building over the next decade or more. As oil becomes more and more expensive, driving long distances to work will become a luxury rather than the norm and heating homes, and electricity usage will similarly be affected (lets ignore all other effects, like food price inflation due to increased transportation costs for the moment). The result of increased expense here is that the value accorded to location today might be completely different to the value it might get 10 years from now because of increased private transportation costs making other factors, like easy access to public transport more attractive/valuable. The heating/power side of things would increase the value of well insulated and efficient homes, i.e. newer ones. This could boost housing builds, even in a completely "full" housing market where no extra houses need to be built, where people buy old houses, knock them and build nice new efficient homes in their place because the savings on running costs makes it worth doing. Other examples you could talk about are changing tastes and trends, the move from 80's bungalows to 90's 3/4 bedroom semi-detached etc. The point to take from this paragraph is, even when we know what to measure, the measures can change over time. Since houses are long lived, long term things, this is rather important. Versus say a Mars Bar, which while very different in value now than 20 years ago, won't exactly be likely to be around still 20 years from now, so we can just take its present day value as being pretty meaningful for some questions.


I'm only discussing two possible factors here, i.e. a) the heterogeneous quality of houses making discussions of housing supply in raw number terms relatively meaningless and b) the fallacy of attributing fixed values to individual houses due to the sensitivity to external shocks meaning that the whole concept of a homogeneous stock of houses is even more meaningless when looked at over the long term where certain key economic conditions will change. I'm not a specialist on the housing market or housing bubbles. A specialist would probably raise even more issues with the question. Part of the issue when addressing economic topics and science in general is that forming the question correctly can be even more important than how you answer it. The popular media approach of taking broad questions, like oversupply, and attempting to give short and snappy answers that anyone can understand is not a rigorous approach to the subject. Their goal, after all, is viewer/reader numbers, not the search for "objective truth". Your average person in this country would be bored to tears by my opinions on these things to be fair. They don't want a long drawn out and analytic answer.



The thing is, it's very easy to misinterpret me dismissing the question of "oversupply" as being poorly defined as being an attempt to wriggle out of an uncomfortable topic, a la a politician, rather than the actual cause which is genuine belief in it being poorly defined and/or answers to it not carrying much meaning or predictive power.

If you aren't asking good economic questions, there's no way for me or most other people on this forum to give you anyway decent economic answers. Since this is the Economics forum, we tend to try and give these kinds of answers rather than off the cuff opinions that we might give in a different setting, for instance.

SkepticOne

UCD_Econ wrote: »

No one truly knows the answer to your question OP, you have to look at the indicators and make up your own mind. If you want to look at the data about growth, the current projections for growth in real GDP for 2008 is 2.3% (which is above the 1.7% forcasted growth rate for the euro area) and is supposed to pick up to 3.2% in 2009.

For unemployment the CSO has the Seasonally Adjusted Standarised Unemployment Rate at 5.5% for April, an increase from 5% in January. So unemployment is increasing but keep in mind we're better than the EU average of 7.1% in 07.

Should projections or forecasts be regarded as data or indicators here?

Also, in discussing the future prospects of the Irish economy how is the fact that unemployment is relatively low by EU standards relevant. It is great that the figure is currently low but it does not tell us about the future at all.

Why is rising unemployment being downplayed? Surely this is the thing that needs explaining. This is the one piece of actual data that has some relevance to the question posed by the OP.

nesf

SkepticOne wrote: »

Why is rising unemployment being downplayed?

One reason is that a side effect of full employment is upwards pressure on wages. Unemployment going from 5% to 5.5% isn't as big a deal as it going from 7% to 7.5% partially for this reason (assuming that rising wages are undercutting competitiveness in the economy etc which could be argued for Ireland in some ways). A steady rise over time or a very sharp rise quickly are something that really need to be ringing alarm bells. A .5% increase when the economy was at or very near full employment, with a correction happening in the housing market which was booming isn't very worrying, yet. One would expect it to rise a bit, the question is where it goes from here. It's whether this will develop into a trend or not is the big question and a very hard one to answer accurately right now. It's really too early to say either way, it's been a slow decrease so far, though I'd be sceptical enough about the accuracy of the figures myself.

Économiste Monétaire

SkepticOne wrote: »

Should projections or forecasts be regarded as data or indicators here?

They're indicators. The figures of the indicators are based on data.

Also, in discussing the future prospects of the Irish economy how is the fact that unemployment is relatively low by EU standards relevant. It is great that the figure is currently low but it does not tell us about the future at all.

The OP asked:

ntlbell wrote: »

For the layman like myself is there much good happening in the economy at the moment?

So my answer about unemployment was relevant to now. When the new quarterly household survey comes out then the figures for unemployment will be more accurate.

Why is rising unemployment being downplayed? Surely this is the thing that needs explaining. This is the one piece of actual data that has some relevance to the question posed by the OP.

Unemployment figures will never be zero due to frictional and structural unemployment. People are always trying to get jobs more specific and closely tied to their skills.

Nesf said it pretty well:

It's whether this will develop into a trend or not is the big question and a very hard one to answer accurately right now.

Also, are you asking why was I downplaying the unemployment rate? It's because cyclical unemployment is what is relevant to recessions and to any dooms-day type theories about mass unemployment from the housing industry.

SkepticOne

With regard to the ESRI projections, it is great that they have a model that predicts healthy economic growth into the future based on actual data but it is not data in itself but a prediction based on a particular model.

UCD_Econ wrote: »

Also, are you asking why was I downplaying the unemployment rate?

No, I felt you are downplaying the rising unemployment not the current rate of unemployment which, as you say, is still low by EU standards.

But how does currently low unemployment mitigate against rising unemployment? To illustrate my point: Britain had a boom in the late 1980's and in the early 90's they had a recession. The fact that they had low unemployment during the boom did not in any way stop them from subsequently having a recession and rising unemployment later.

We have had a boom and low unemployment. I don't believe this, in itself, tells us much about the future direction of the economy (but I am open to correction).

Économiste Monétaire

SkepticOne wrote: »

No, I felt you are downplaying the rising unemployment not the current rate of unemployment which, as you say, is still low by EU standards.

Because the rising unemployment from January wasn't large enough to be considered as cyclical unemployment. You can wait for the figures from the QHS to come out and make up your own mind.

But how does currently low unemployment mitigate against rising unemployment?

It's the severity of the rise. Not all unemployment is consistent with a recession.

Britain had a boom in the late 1980's and in the early 90's they had a recession. The fact that they had low unemployment during the boom did not in any way stop them from subsequently having a recession and rising unemployment later.

That's the business cycle, c'est la vie . All booms come to an end because 8+ percentage growth rates (in our case) aren't sustainable. The recession you're talking about occured because of the ERM/George Soros/Speculative attack on the British pound on Black Wednesday.

We have had a boom and low unemployment. I don't believe this, in itself, tells us much about the future direction of the economy (but I am open to correction).

You're right it doesn't tell us much. I don't think anyone said that because we have had a boom we will not have a recession. I don't quite get what you're trying to ask.

SkepticOne

UCD_Econ wrote: »

It's the severity of the rise. Not all unemployment is consistent with a recession.

Thanks but that is the answer to a different question.

In the post I'm querying you raised two points in response to a question about future economic growth.

1. ESRI predict future long term growth.
2. Unemployment is growing but still low by EU standards.

My point is: the fact that unemployment is currently low says nothing about the future of the economy. It is simply a snapshot of the way things are now when the question under discussion is how things will be in the future.

As I said, I stand to be corrected on this.

I agree that rising unemployment is only a worry if it continues but I don't see how the currently low employment is a mitigating factor.

However let's move on. I can't critique the ESRI prediction because I don't have access to the full report.

What are the trends we can identify at the moment that are pointing to increased growth? Have there been any surveys recently indicating increased consumer confidence etc. Is consumer spending up?

nesf

SkepticOne wrote: »

However let's move on. I can't critique the ESRI prediction because I don't have access to the full report.

Or more accurately, you're like myself and refuse to fork out 100 euro for something that'll be free online in a month.

SkepticOne wrote: »

What are the trends we can identify at the moment that are pointing to increased growth? Have there been any surveys recently indicating increased consumer confidence etc. Is consumer spending up?

See, purely with regard to the ESRI report, those would be more relevant to a short term view rather than a long term view on the economy. You'd really have to be looking at trends from a much broader perspective than next month's figures.

SkepticOne wrote:

We have had a boom and low unemployment. I don't believe this, in itself, tells us much about the future direction of the economy (but I am open to correction).

It does and it doesn't. The biggest debate I've seen on our long term prospects with respect to our present situation is between those who think we've been going through a "regional boom" and those who think we have been undergoing convergence with the EU (i.e. playing catch-up economically). Basically, are we so small that we should think of the economy as being like a region in a bigger country or should we think of the economy as being a fully functioning country. We are so small, and so open, that arguably we're buffeted by exogenous forces to a far greater extent than one would normally expect given standard economic (growth) theory, which is mainly focussed on much bigger countries who because of their size aren't as affected by international events.

For example, if there was a major shock big enough to run all the FDI out of Ireland would indigenous companies rise in their place picking up the pace of growth or would GDP/GNP shrivel like that of a small region when the jobs go and the "good" people flee to better pastures etc resulting in the economy taking a major nosedive? Most stuff I read subscribes to the former view, the latter has some support though. The most interesting thing, from a political perspective, is that if the latter is more true, then we're pretty much at the mercy of the global market which is a very sobering thought in many ways.

SkepticOne

nesf wrote: »

See, purely with regard to the ESRI report, those would be more relevant to a short term view rather than a long term view on the economy. You'd really have to be looking at trends from a much broader perspective than next month's figures.

I have to take the blame for continuing the issue of the ESRI report, but if we go back to the original question raised by the OP, we could be heading into a recession in the coming months, but the ESRI report (which is about longer term prospects) would still be correct. It does not really address the issue under discussion.

What is the actual data (not projections) that points to the economy improving in the near term?

It does and it doesn't. The biggest debate I've seen on our long term prospects with respect to our present situation is between those who think we've been going through a "regional boom" and those who think we have been undergoing convergence with the EU (i.e. playing catch-up economically). Basically, are we so small that we should think of the economy as being like a region in a bigger country or should we think of the economy as being a fully functioning country. We are so small, and so open, that arguably we're buffeted by exogenous forces to a far greater extent than one would normally expect given standard economic (growth) theory, which is mainly focussed on much bigger countries who because of their size aren't as affected by international events.

For example, if there was a major shock big enough to run all the FDI out of Ireland would indigenous companies rise in their place picking up the pace of growth or would GDP/GNP shrivel like that of a small region when the jobs go and the "good" people flee to better pastures etc resulting in the economy taking a major nosedive? Most stuff I read subscribes to the former view, the latter has some support though. The most interesting thing, from a political perspective, is that if the latter is more true, then we're pretty much at the mercy of the global market which is a very sobering thought in many ways.

Right. So given all this, what do you think is going to happen in, say, the next two years? It is grand listing off factors affecting the economy - I could many more factors - but at some time you need to weigh up the various factors and come to a conclusion.

Edit: To be fair you did answer the question earlier in the thread:

Things will be tighter for the next few years and the housing correction will squeeze people's pockets/wealth/spending a bit but these things happen in modern economies, you've just got to accept it tbh, you can't have booms without busts etc. Our economic growth looks to be slowing but we're nowhere close to a seriously bad recession in growth terms.

I would agree with a lot of this but I'm a bit more pessimistic at the moment. There does not seem to be much data out there supporting an optimistic view at present.

nesf

SkepticOne wrote: »

I have to take the blame for continuing the issue of the ESRI report, but if we go back to the original question raised by the OP, we could be heading into a recession in the coming months, but the ESRI report (which is about longer term prospects) would still be correct. It does not really address the issue under discussion.

Honestly, I think the ESRI report should have been discussed in a separate thread. It's actually not that related to the OP's question in many ways.

SkepticOne wrote: »

What is the actual data (not projections) that points to the economy improving in the near term?

Edit: To be fair you did answer the question earlier in the thread:I would agree with a lot of this but I'm a bit more pessimistic at the moment. There does not seem to be much data out there supporting an optimistic view at present.

I don't think I'm being optimistic really. The burden of proof is really on those wanting to put out a more pessimistic (or optimistic) view on the near term, i.e. looking at unemployment, we'd really need to be seeing more of an upwards trend in it for it to give weight to a major recession in this country. For data, look at the US and Europe. Either the states, or the Euroarea going into a deep or prolonged recession would be bad news for us. Slower activity in the US economy for instance for a year or two would be a very different animal to a recession that lasted five. If the latter occurs we're going to have a major contraction on one of our major trading partners and there would be a lot of pressure on FDI based here who mainly service the US market. Both would be equally bad.

We were always going to slow fom 7+% growth to 3ish% growth. What we weren't sure of was when that was going to happen. We might undershoot on the downside or we might have a "soft landing" and decrease to around 3%, in the long run (ie decade+) it's much of a muchness really. Assuming there's no worldwide recession.

Assuming that we'll settle around 3% is the "default position" in many ways. What is interesting is looking at factors that would shift us away from there.

SkepticOne

nesf wrote: »

Assuming that we'll settle around 3% is the "default position" in many ways. What is interesting is looking at factors that would shift us away from there.

I think 3% would be a great outcome.

As far as I can see we have
1) Rising unemployment.
2) High level of external debt.
3) Still overpriced housing according to the IMF and others.
4) High oil prices and rising food prices.
5) High value of the Euro compared to $ and £.
6) Tightening credit. (let's not argue about whether it's a 'crunch').
7) Building boom (a significant employer + related industries) coming to an end.

Each of these things on their own can be picked apart, but in combination we're looking at a bad situation, imo, from an economic growth point of view. But maybe I'm focussing on the negative side of things.

Can we list a corresponding set of positive factors supporting economic growth?

Économiste Monétaire

SkepticOne wrote: »

I think 3% would be a great outcome.

As far as I can see we have
2) High level of external debt.

You need to remove number 2 completely.

Ireland has a very low Debt to GDP ratio of 25%. We are required to keep it below 60% so you can't consider our debt to be of a 'high level'.

nesf

SkepticOne wrote: »

I think 3% would be a great outcome.

As far as I can see we have
1) Rising unemployment.
2) High level of external debt.
3) Still overpriced housing according to the IMF and others.
4) High oil prices and rising food prices.
5) High value of the Euro compared to $ and £.
6) Tightening credit. (let's not argue about whether it's a 'crunch').
7) Building boom (a significant employer + related industries) coming to an end.

Each of these things on their own can be picked apart, but in combination we're looking at a bad situation, imo, from an economic growth point of view. But maybe I'm focussing on the negative side of things.

Can we list a corresponding set of positive factors supporting economic growth?

Well, lets look initially at your 7 (some of them can be looked at "positive" factors, or in my opinion, "not overly negative factors").

1) is problematic if and only if it keeps rising. If it settles around 5-6% it wouldn't be that bad a thing for the economy. Lower wage pressures could self-correct the rise, or other sectors other than construction doing well could mean that while construction contracts, sectoral shifts for workers means unemployment doesn't escalate too far.

2) External Debt (I'm assuming you mean private debt) is a problem and will impact on consumer spending in my opinion, however; the extent of the decrease in consumer spending, rather than the level of external debt is the key and the distribution of that debt is also important.

3) The IMF econometric models are tailored for the US market. Their views of "over-valuation" in the Irish market shouldn't be taken as gospel, the US and Irish markets are very different beasts. Not that I think we're not over-valued, I'd just take the numbers with a pinch of salt. We've had a major shift from a primarily one income household to decent mixture of two and one income households. This in and of itself, even with everything else held constant, would massively alter the "value" of large assets like houses. House prices are very much a function of what people can afford to pay rather than having intrinsic values per se.

4) These are a problem. Not so much for us, but for our trading partners. The biggest risk is the beginning of a wage/price inflation cycle like the 70s/80s (i.e. prices rise so wages rise so prices rise so wages rise etc). The ECB are keeping a very close eye on this, though whether they can control it is another question. Very high inflation in the US would be a bad thing for us, regardless of our own state.

5) This (surprisingly) hasn't seemed to be slowing the growth of exports in the Eurozone, yet. No one, including all the central banks, want the euro to be this strong and they are trying to get it down a little but as long as the Fed is running a far looser monetary policy policy than the ECB it's not going to change hugely. If this is a temporary fluctuation then it's not a big worry, if it's a move to a new equilibrium, the economy will have to change.

6) This is a good thing. We had too much credit floating about the place. As is, we needed to tighten the belts for a number of reasons, both nationally and internationally. Actually, this counters 2) quite nicely. Tightening credit can put a lid on private debt etc. It has bad effects but it's not necessarily solely a bad thing either.

7) It's good that it's happening. The longer the boom went on, the more painful the correction was going to be. Construction, and housing in particular, is very prone to bubbles and busts and there isn't a whole lot anyone can do about it except trying to minimise the losses. It had to happen, construction was "artificially" inflating growth levels over the past few years. The adjustment will be painful but it is necessary.


Positive points:

1) Irish growth wasn't purely driven by capital and labour accumulation (though the last five years were fairly dependent on it). Convergence, assuming that we are converging, would, on the long run, slow as we get further up the ladder. One would expect growth to slow down to 2-4% annually over the long run based on past international experiences. A slow down in growth isn't necessarily worrying because one would expect it to slow down. In fact, it's surprising it didn't slow down earlier in some ways.

2) Private debt is an issue but public debt isn't. Fiscally we've been well enough behaved (yes, it could have been better but the public finances are healthy for the most part).

3) Being part of the Single European Market is actually fairly important growth wise.

4) Human capital wise, we're in a pretty good position. We've a (still) pretty young, well educated workforce that is attractive to external FDI investment. Not as attractive as the early 90s but we don't have a double digit unemployment figure, so we don't necessarily want the same level of growth in the sector as we used to. Too much FDI just pushes up wages and prices as companies have to compete too hard for staff, which isn't a good thing.

5) Construction powered a lot of the growth in the economy in the past 5 years, I couldn't put a number on it but it wasn't insignificant. The thing is, we weren't depending on that growth to avoid recession. It was "extra". If we were growing like Spain was over the past decade and the bubble was bursting we'd be in a lot more trouble, like Spain is in at the moment.


I'm missing loads, that's just what I can think of off the top of my head.

SkepticOne

UCD_Econ wrote: »

You need to remove number 2 completely.

Ireland has a very low Debt to GDP ratio of 25%. We are required to keep it below 60% so you can't consider our debt to be of a 'high level'.

I think you may be referring to just government debt here. It will have to stay until there is clarification.