Is our economy now at a tipping point?

AARRRGH

I was watching the Late Late Show last night (!!!) and Harry Crosbie was a guest. He said something like "we are now at a tipping point where businesses which have been hanging on are going to close".

And then today I noticed two businesses which I wanted to use - "Free Spirit" beauty salon in Citywest, and UCI Tallaght - have closed down.

Do you think our economy is at a tipping point?

As someone who used to work in finance I think it makes sense. There's only so long you can continue at a loss, and there doesn't appear to be any hope on the horizon for our economy.

SkepticOne

What is happening is that Ireland is adjusting to the new world where prices have to come down but the debt for existing businesses remains high. This means, unfortunately, that businesses have to go under so that other's can move in without the debt encumbrance and take their place.

Anecdotal evidence for this might be the other thread where hotels are complaining about banks that have taken over other hotels but have prices so low that it is putting them out of business.

Of course all the banks are doing is maximising their return on their investment like any business. But if you have taken on a lot of debt to build that hotel then it is very hard to lower prices. You are going to keep prices high in the hope that some sort of recovery happens and you can keep going.

I think a similar thing is happening with commercial landlords. They are loath to lower rents even though businesses are leaving and they are left with unoccupied units. You are not going to lower asking rents below the cost of servicing your debts. You are going to hold out for a recovery since to do otherwise is to admit failure and you may as well declare bankrupscy at that point. Instead, you are going to believe Cowen when he says we've "turned a corner".

Unfortunately, these people going under is part of the recovery process.

Scofflaw

The market giveth, the market taketh away...blessed be the market.

gnomically,
Scofflaw

Atlantic Dawn

There's a lot of businesses would have been given leverage up to Christmas by their banks and suppliers, in the time since the reality of what they owe and the market that's left has taken and will take many more casualties.

dan_d

Didn't see him, but I heard he reckons we haven't seen the worst of it yet.

For once, I find myself agreeing with him.Loathe though I am to say it.

2ygb4cmqetsjhx

Now I don't know much about economics. But I think we are definitely in **** creek. Was in Drogheda town centre yesterday and I counted the closed businesses on the main street. 23+ units closed in the last 12 months. To me as long as the banks are not loaning money more businesses will close. The predicted increase in houseprices makes me laugh. There are tonnes of houses in Louth that will not sell. Until we are in the situation where the banks are willing to lend money again things will get worse and worse. I don't know how they are going to start lending soon though!

buddy4711

A lot of companies are trading with the profits made in the boom years. They are eating rapidly into their capital base, and just fore-stalling the evil day. Byrnes world of wonder closed!
I looked around a local retail park yesterday. 1 B & Q - deep pockets and probably doing OK as people revert to DIY. 1 Byrnes World of Wonder - last day of closing down sale. 1 Halford - same as B&Q situation. 1 Carpetright - just a matter of time? 1 PC world - ditto. 1 Right price tiles - like a morgue, go figure. 1 Hardly Normal - haemorhaging cash, writing on the wall? 1 overblown version of a pound shop that took up the space when the previous retailler tanked a few months ago.
I can see it not being beyond the bounds of imagination that all except BQ and Halfrauds will be heading for the gate in the near future, and I imagine that situation will be repeated around the country. Could be a tipping point alright, and not for the better.

MaceFace

buddy4711 wrote: »

A lot of companies are trading with the profits made in the boom years. They are eating rapidly into their capital base, and just fore-stalling the evil day. Byrnes world of wonder closed!
I looked around a local retail park yesterday. 1 B & Q - deep pockets and probably doing OK as people revert to DIY. 1 Byrnes World of Wonder - last day of closing down sale. 1 Halford - same as B&Q situation. 1 Carpetright - just a matter of time? 1 PC world - ditto. 1 Right price tiles - like a morgue, go figure. 1 Hardly Normal - haemorhaging cash, writing on the wall? 1 overblown version of a pound shop that took up the space when the previous retailler tanked a few months ago.
I can see it not being beyond the bounds of imagination that all except BQ and Halfrauds will be heading for the gate in the near future, and I imagine that situation will be repeated around the country. Could be a tipping point alright, and not for the better.

Ah, you were down in Newhall......

I don't really buy into this "verge of the abyss". As Scofflaw mentioned earlier, the market will adapt. There will come a time when the landlords will reduce the rents of vacant units (they must have already with that overblown pounds shop), and these units will be reoccupied with businesses that can operate during a recession.

Slideshowbob

MaceFace wrote: »

Ah, you were down in Newhall......

I don't really buy into this "verge of the abyss". As Scofflaw mentioned earlier, the market will adapt. There will come a time when the landlords (YOU MEAN THE BANKS THAT OVER LEANT TO LANDLORDS WILL REDUCE RENTS) of vacant units (they must have already with that overblown pounds shop), and these units will be reoccupied with businesses that can operate during a recession.

The banks can do this because they are bailed out by Governments i.e. taxpayers!

Idbatterim

We all know that the banks in the majority of cases arent lending, could the goverment not have set up in effect their own Business Bank, get in people with the relevant expertise to administer and run it and make the lending decisions, ie. those with banking, finance and business experience, including current or former company directors. Companies looking for loans with a realistic prospect of survival and repayment would get them, those that didnt could either be told to come up with a survival package and then get the credit and the hopeless cases may be best to get out when the writing is on the wall. Or are the goverment conspiring to ruin everything in the name of competitiveness and dont actually want to do something about the current situation?

Iago

Arabella Shallow Testosterone wrote: »

Now I don't know much about economics. But I think we are definitely in **** creek. Was in Drogheda town centre yesterday and I counted the closed businesses on the main street. 23+ units closed in the last 12 months. To me as long as the banks are not loaning money more businesses will close. The predicted increase in houseprices makes me laugh. There are tonnes of houses in Louth that will not sell. Until we are in the situation where the banks are willing to lend money again things will get worse and worse. I don't know how they are going to start lending soon though!

you're right, you don't know much about economics.

buddy4711

Having seen the scenario that played out in the uk during the early 90's, where every second shop on the high street was a pound shop, To Let, or a charity shop, and recovery took a good number of years, I do not think it looks too good. I spoke to a friend who is a foreman at a major steelworks, and he said that even if there was a pick up in the economy, the overhang of vacant unwanted units to let would take so long to be fully utilised that there would be no recovery in construction for a long time to come. A lot of Irish depend on construction. A lot will have to change.