The Economist three year predictions for Ireland

nesf

http://www.economist.com/daily/news/displaystory.cfm?story_id=12664671

Very much on the negative side and quite critical of the Government's handling of the situation, especially the lack of fiscal stimulus in the last budget (which I'd agree with).

The main point to take from it, if the other OECD countries were doing well Ireland would not be in very serious trouble because our export sector would offset some of the losses from construction and the property bubble but since world economic conditions make it likely that these countries will be in recession for 2009, we're looking at tough economic times ahead. When the world economy picks up, 2010 is a possibility, the Irish economy will recover some of the lost ground but until then it's very hard to see where growth can come from especially with the Government raising taxes and refusing to meaningfully cut spending on services.

Permabear

This post has been deleted.

Thirdfox

Unparalleled even compared to Iceland? That's a bit harsh I would have thought :P

Mr.Micro

This is the bit I find alarming, about the Government supervising these institutions closely ( since the same people are stiil in the banks and the totaly ridiculous financial regulator sitting in his palace who does not have a clue ).

"Having recently guaranteed the liabilities of the country's leading banks—to ease liquidity pressures and calm the fears that had led to a depletion of deposits in September—the government will now have to supervise these institutions closely.

Given that the banks are hugely exposed to the plunging domestic property market, one of the central roles for regulators will be to assess whether non-performing loans are likely to erode the banks' capital bases to the extent that they become insolvent. There is a considerable probability that this will happen, as bad debt levels rise in the face of the deepening recession. A far heavier form of government intervention than that undertaken so far would then be required to recapitalise the system. Should this be the case, our current forecast of three successive years of economic contraction could yet prove optimistic."

silverharp

I dont understand these fiscal stimulus arguments , where is this new/other money supposed to come from? if an individual or a company is in trouble you tell them to cut back, become more effecient etc. but somehow because it is a country where you can confuse the "who is paying for this when" its ok to waste resourses propping up unsustainable activities which further depletes resources.
Markets always comes down to being more efficient then the next guy, so the gov should focus on attacking the "dead hand" of the civil service and other state entities. Collectively a significant amount of the population made very unwise financial decisions and it is going to take years to unwind this situation. if the average irish person is no more productive then in Germany/France but we are stuck with higher salaries and debt, then something has to give, expect much more unemployment and alot of business failures. there aint nothing the gov can do or should do to prop them up.

genericgoon

silverharp wrote: »

I dont understand these fiscal stimulus arguments , where is this new/other money supposed to come from? if an individual or a company is in trouble you tell them to cut back, become more effecient etc. but somehow because it is a country where you can confuse the "who is paying for this when" its ok to waste resourses propping up unsustainable activities which further depletes resources.
Markets always comes down to being more efficient then the next guy, so the gov should focus on attacking the "dead hand" of the civil service and other state entities. Collectively a significant amount of the population made very unwise financial decisions and it is going to take years to unwind this situation. if the average irish person is no more productive then in Germany/France but we are stuck with higher salaries and debt, then something has to give, expect much more unemployment and alot of business failures. there aint nothing the gov can do or should do to prop them up.

I beleive the recapitilisation of banks is seen as necessary as they are the main providers of credit to the economy, without which the entire house of cards comes tumbling down. Unfortunately, if one major banks was to tumble you can bet that the other Irish banks would take a mighty hit in both terms of stock market value and their deposit base (worst case scenario would be a bank run on one or more of our banks). Quite simply, our current economic model requires that there is some kind of credit flow and if this were to be eroded any further, our economy would be looking at some extremely bad times ahead. For now we have to prop up the banks but we may eventually get a pound of flesh for their mistakes.

silverharp

genericgoon wrote: »

Quite simply, our current economic model requires that there is some kind of credit flow and if this were to be eroded any further, our economy would be looking at some extremely bad times ahead. For now we have to prop up the banks but we may eventually get a pound of flesh for their mistakes.

Just bear in mind though, you have the japanese model to look forward to, Zombie banks and consumers and businesses that dont want to borrow also known as pushing on a string, except probably worse in Ireland as consumer debt is so high. So for now I will view any measures taken as part of a dog and pony show.

KingSitric

This forecast and opinion is hardly surprising. What is, really shocking about this governments response is the lack of leadership, vision and strength to head this off. There are positives -we are tech advanced, English speaking, well educated people. The government should not be cutting back and penalising business and people by increasing taxes but rather the opposite.
We should be borrowing money to pay for capital investment projects which will stimulate the economy. If the US and the UK are doing this we should follow suit -they're in a worse situation than we are.

genericgoon

silverharp wrote: »

Just bear in mind though, you have the japanese model to look forward to, Zombie banks and consumers and businesses that dont want to borrow also known as pushing on a string, except probably worse in Ireland as consumer debt is so high. So for now I will view any measures taken as part of a dog and pony show.

This of course a risk where these companies are no longer viable and thus have to be kept artificially alive. These are of little use to the economy. However, I think a major consolidation of the market through mergers may create banks which will not fall into this trap. Of course such moves will have to be facilitated and made more attractive by the Government but if made sufficiently attractive the banks may be able to attract the capital needed in the short term to keep themselves ticking over in a real sense till market conditions improve. However, the alternative scenario of doing nothing would be to all extents and purposes be a disaster to the country.

nesf

silverharp wrote: »

I dont understand these fiscal stimulus arguments , where is this new/other money supposed to come from?

Fiscal stimulus can be as simple as a reduction of the tax intake or as you mention, a reduction in spending in the civil service leaving money to be spent elsewhere. The money for extra spending in lean times should come from what we've put aside in the good times, i.e. run surpluses and pay down debt so we can run deficits and not have to drastically cut back on spending in the lean times. The problem is that special interest groups will always be pressuring Governments to raise spending in the good times and if this happens then we will have to cut back sharply on spending in the lean times in order to balance the books.

luckat

The Economist has never much liked Ireland, mind. I remember nearly dropping the computer in shock when seeing a positive article about Ireland from the Econ a few months back.

nesf

luckat wrote: »

The Economist has never much liked Ireland, mind. I remember nearly dropping the computer in shock when seeing a positive article about Ireland from the Econ a few months back.

They spent quite a lot of time enthusing about the country and its turnaround in the mid to late nineties for a magazine that dislikes the country.

shoegirl

I think the E has always been cynical about the dependency on property, without really considering the historical precedents upon which it is based (for example land wards of 1800s, the situation in 1910 or so where less than 10% of the population were property owners, very poor provision for public housing in the 1990s and emigration/immigration waves). However I do feel that Ireland Inc. has badly neglected the traded sector and badly mismanaged business development. I think this is why disproportionate levels of funds went into the property industry, even when vacancy rates were believed to be as high as 20%. The lack of planning and infrastructure development has to be a large part to do with it too.

I've a fews friends who bought little places nearly 20 miles outside Cork only to find themselves now living in virtual no-man's lands, with no neighbours, swathes of unsold housing, poor or non existent services, etc. In some cases they even struggled to get mortgage approval for these places and they were cheap by 2006 standards.

One of the worst atrocities of this government was how it let vast numbers of jobs disappear out of certain areas but then subsequently allowed them to become large commuter regions - East Cork around Youghal, North Cork around Mitchelstown/Fermoy and Mallow. I can only speak for Cork, but I believe something in the region of 2000 plus jobs have vanished from these areas, disaplaced into regions like Mahon Point and Little Island/Carraigtohill, but now requiring long commutes from the places above. These places should have been properly developed, not left to die as long-distance commuter farms.

I still gasp when hear I hear about announcements for "high quality jobs" in call centres that inevitably are going to be in reality minimum wage sweat-shops competing with real world sweatshops in the Far East and India.