1% GDP growth is what we should expect?

ressem

In an article in the Irish Times Fintan O'Toole makes the following statement...

http://www.irishtimes.com/business/economy/betting-all-on-a-horse-called-growth-1.1353134?page=2 wrote:

Ashoka Mody, who led the initial IMF team in Ireland, has worked out a very interesting figure. Between 2001 and 2007, we had real GDP growth of nearly 5 per cent. But of that, all but 1 per cent came from two sectors – banking and building. Strip out these bubble effects and we’re actually looking at a pre-boom norm of 1 per cent annual growth – pretty much what we’ve got now.

Is this actually accurate? (Building presumably includes state motorway infrastructure as well as private building)

If so, then Fiannna Fail / Fine Gael's growth projections are reliant on a property re-inflation which is unlikely outside the cities.
Also suggests that the growth projections of 2.5% to make the debt sustainable was just a political prayer for a new bubble.
The only building growth is likely to be the waterworks investment. 2016 will come and go and we'll still be in the current malaise and with higher levels of debt.
If real growth was only one percent throughout the bubble, then the touchstone of EU recovery is unlikely to make any contribution to the Irish growth level.

http://www.irishtimes.com/business/we-are-treating-the-preIsent-as-if-bubbly-growth-from-2000-to-2007-will-return-1.1250658

Multinational employment requires heavy subsidies and grants making the contribution to short term revenue growth a bit suspect. IT advancements appear to be about sourcing work /info / entertainment from cheaper countries, or reducing paper handling. Not seeing productivity advancements there as one company's gains are balanced with local losses.

Are tourism and food production the only realistic growth areas over the next few years? Or am I being overly pessimistic and underestimating some growth areas and investments like the planned Intel upgrade.

sock puppet

It's a debate that's been going on for the last while. Basically one point of view is that the only real innovations of the past half century or so have been in ICT, and even within that field most progress today is just incremental improvements on what's already there.

I'm not sure if there's really enough data to draw a conclusion. Since 2000 we've had a bubble followed by one of the world's worst ever recessions.

Sleepy

ressem wrote: »

Multinational employment requires heavy subsidies and grants making the contribution to short term revenue growth a bit suspect.

My company are based in an IDA park that's perhaps at 50-60% occupancy.

Assuming (a dangerous word on this forum I know) that it's not an anomaly, and given it's location (Blanchardstown, 20 minutes from Dublin Airport, 2 minutes from the M50), I think it's fair to suggest that it's unlikely to be, it might be fair to suggest that while tax breaks / grants might still be required, the true cost of attracting FDI may no longer be as high as it was given available capacity in the IDA's current infrastructure.

While some refurbishment of that infrastructure may be required as part of a deal, this would surely be cheaper than the cost of building new infrastructure.

ardmacha

In the 1990s, Ireland had much more rapid and balanced growth. There is spare capacity and if there is demand then there will be some years of higher growth. The problem is that the Eurozone is fecked and so there is no demand externally and internal demand is compromised by high debt etc.

Geuze

Our potential growth rate is more like 3%, maybe even 4%.

Scofflaw

It's certainly the case that our debt dynamics are very delicate. It's also not surprising to hear that our GDP growth in the Celtic Tiger was basically banking and building.

Unfortunately, between the 'baseline' scenario (growth rates of 2.2 in 2014, 2.7 2015-2018, and 2.5 to 2021), and the 'stagnation' scenario of 0.5% growth per year, the IMF do not give figures - but it looks as if anything under about 1.5% average growth is unsustainable, anything over that sustainable.

Whether that is reachable without a return to banking/building growth - and whether the former is possible/likely (building will almost certainly return to growth, given its present position) - is an open question, but it's by no means the farcical prospect O'Toole makes it out to be.

And if Mody is right, and we have effectively seen the end of high growth - something I'd regard as quite probable barring a tech upset like fusion power - that doesn't mean Ireland in particular is necessarily condemned over the medium term to stagnation and debt growth. The Tiger may have inflated our apparent prosperity past those of larger countries, but this is still an underdeveloped economy, particularly in terms of its SME sector, relative to those larger countries.

cordially,
Scofflaw

antoobrien

Scofflaw wrote: »

building will almost certainly return to growth, given its present position

Building is at an artificial low, just as it was at an artificial high before.

Leaving aside new construction for a minute, there is a gap for maintenance measures if/when a recovery starts or consumer spending picks up.

There are also government back projects like installation of water meters, the schools & roads packages (there are 5 PPP projects in various states of preparation) to come up over the next few years.

Hopefully this will pick up some of the slack and give us a more realistic view of where we should be wrt construction. the one thing we need to be careful of is the need to avoid inadvertently promoting a bubble that could be pricked by the removal of government funding in any one area.

Sponge Bob

Sleepy wrote: »

My company are based in an IDA park that's perhaps at 50-60% occupancy.

While some refurbishment of that infrastructure may be required as part of a deal, this would surely be cheaper than the cost of building new infrastructure.

A lot of the new entrants require groovy city offices ( Google Facebook) not some tin box in Ballycoolin. The tin boxes are retrofitting to datacentres but the high end employment is tilting back to city centres now.

Teleworking and commuting part time not full time ( ditching one car) is not that easy in a badly served tin box out of town, much easier where the transport hubs are. Simply read my sig to see where Teleworking is most feasible nowadays.

The IDA has no property in town though and have a headache.

Sleepy

That's a good point but I think mine still stands: the IDA have capacity. If it has to be let for next nothing (or indeed nothing) to attract in investment, it should be.

While the "tin boxes" may not suit high-end employment, it's arguable that low-end employment is actually worse needed given the demographics of many on our unemployment lines.

Sponge Bob

Sleepy wrote: »

While the "tin boxes" may not suit high-end employment, it's arguable that low-end employment is actually worse needed given the demographics of many on our unemployment lines.

Correct but that sort of investment is bypassing Dublin (with the exception of the Sky call centre). On a per capita basis Galway gets a lot more of it (in medical devices in particular) which create semi skilled and unskilled labouring jobs on production lines.Not enough to offset the collapse in the building though.

Sand

Growth relies on a lot of factors, not just spare capacity. Access to credit is either limited or non-existent, and even if it was available state debt, business debt and private debt are all at critical levels so there's little hunger to take on additional debt or invest. Human capital is being run down by high youth unemployment and whatever edge an Irish education might have offered in the 1980s is greatly reduced in the present age. The internal devaluation strategy is being sabotaged by a mixture of poor implementation and insider safety nets like the CPA.

Once you remove the easy, cheap credit that flowed during the late 90s and early to mid 00s 1% growth seems about the best we can hope for over the next decade or so barring some game changing event in the Eurozone. That very unfortunately isn't enough. Given the debt levels the Green Jersey strategy has piled on, Ireland is going to be incredibly vulnerable to any global or regional economic shock.

ressem

If the country is not going to see 2-3% growth, then business owners would be better knowing this and acting accordingly to close or remake the business rather than keeping running at a loss based on predictions.

I'd agree that the SME area is undeveloped.
So is this an area that can have it's turnover accelerated by straightforward low-cost means.

E.g. currently small businesses get a friend, employee, intern to put up english language web stores and sites. It is left in a "good-enough" state and altered rarely. No-one that they can afford will tell them how to progress this as they grow the business.

Could a simple document be created by web designers + enterprise ireland outlining something like...
1) ABC are the minimum capabilities and SEO that your starting web-site should have.
2) By implementing addons D,E you will have the website ready to advertise in non-English. Company F will translate sales and support requests for a percentage cost.

Then angel investors / credit unions could sponsor step 2 for a share of proceeds.
Enterprise Ireland are currently advising small businesses to update websites to work for mobile and social media, and partial grants are available. But these businesses don't know what to ask the web-devs for. So they end up asking about apps and the like that contribute nothing to the bottom line.

--

Similarly a single flow-chart document (or google-maps style web-site mega page) encompassing the various grants available across all state boards; so when asked, a county enterprise employee has to explain why each is not applicable.
A number of businesses and EI employees have complained that businesses are only told about the grants that come to the mind of the state employee at that moment leaving them with a false impression that there is no viable support available to start or grow their business, or having to ask in different county offices to get a complete picture.

Scofflaw

ressem wrote: »

If the country is not going to see 2-3% growth, then business owners would be better knowing this and acting accordingly to close or remake the business rather than keeping running at a loss based on predictions.

I'd agree that the SME area is undeveloped.
So is this an area that can have it's turnover accelerated by straightforward low-cost means.

E.g. currently small businesses get a friend, employee, intern to put up english language web stores and sites. It is left in a "good-enough" state and altered rarely. No-one that they can afford will tell them how to progress this as they grow the business.

Could a simple document be created by web designers + enterprise ireland outlining something like...
1) ABC are the minimum capabilities and SEO that your starting web-site should have.
2) By implementing addons D,E you will have the website ready to advertise in non-English. Company F will translate sales and support requests for a percentage cost.

Then angel investors / credit unions could sponsor step 2 for a share of proceeds.
Enterprise Ireland are currently advising small businesses to update websites to work for mobile and social media, and partial grants are available. But these businesses don't know what to ask the web-devs for. So they end up asking about apps and the like that contribute nothing to the bottom line.

Good point. Unfortunately, the number of people who are competent in both web development and business development is very small indeed, and most web devs and business devs probably couldn't even sit down and thrash out something useful without at least one person like that in the process (ideally, in the room at all meetings). Almost certainly the process would wind up being passed off by the experienced elder business advisors at EI to young MBAs from the Facebook generation - which would probably produce exactly the same result as the company meeting web designers in person. Very few people seem to think at all about the back-office and customer service processes required for e-commerce - most don't even think their way through the requirements of content creation.

On the other hand, if anyone at EI wants a fairly hard-bitten web developer/architect with a lot of SME and business development experience, I'm certainly available!

ressem wrote: »

Similarly a single flow-chart document (or google-maps style web-site mega page) encompassing the various grants available across all state boards; so when asked, a county enterprise employee has to explain why each is not applicable.
A number of businesses and EI employees have complained that businesses are only told about the grants that come to the mind of the state employee at that moment leaving them with a false impression that there is no viable support available to start or grow their business, or having to ask in different county offices to get a complete picture.

Also an interesting idea. A big part of the funding problem, though, is that seed funding is fairly well catered for, and then you basically drop off a cliff, which means that somewhere between the 6-12 months that your seed funding might cover you for, and the 2-3 years it takes to turn a profit, the business is left to its own devices. Which is fairly Darwinian, but a slow burner is sometimes perfectly profitable in the long run.

cordially,
Scofflaw

ressem

Scofflaw wrote: »

Also an interesting idea. A big part of the funding problem, though, is that seed funding is fairly well catered for, and then you basically drop off a cliff, which means that somewhere between the 6-12 months that your seed funding might cover you for, and the 2-3 years it takes to turn a profit, the business is left to its own devices. Which is fairly Darwinian, but a slow burner is sometimes perfectly profitable in the long run.

cordially,
Scofflaw

Anecdotally, the Collison brothers (http://en.wikipedia.org/wiki/Patrick_Collison) were incorrectly told that they'd have to raise 25K to receive matching funding, which was not an option for them.
Though not having to bang heads against the Irish paperwork probably worked out for the best in their case.

I have heard that a reputable Irish product design company was working on a proposal to fill this funding gap in a manner beneficial to all. They currently do product development and business development for manufactured item startups for about 2K.

Scofflaw

ressem wrote: »

Anecdotally, the Collison brothers (http://en.wikipedia.org/wiki/Patrick_Collison) were incorrectly told that they'd have to raise 25K to receive matching funding, which was not an option for them.
Though not having to bang heads against the Irish paperwork probably worked out for the best in their case.

I have heard that a reputable Irish product design company was working on a proposal to fill this funding gap in a manner beneficial to all. They currently do product development and business development for manufactured item startups for about 2K.

The whole "matching funding" thing is incredibly irritating. Sure, you can look at it as doubling your funding if you're a good fundraiser, but you can also see it as if you can't raise any significant money, state funding won't help you.

cordially,
Scofflaw

maninasia

ardmacha wrote: »

In the 1990s, Ireland had much more rapid and balanced growth. There is spare capacity and if there is demand then there will be some years of higher growth. The problem is that the Eurozone is fecked and so there is no demand externally and internal demand is compromised by high debt etc.

Yes, I think the demand part of the equation is very important, where is it coming from? Europe is where most of these multinationals were focused on in terms of their investments in Ireland.

The real significant growth in in demand worldwide has been in Asia and to a lesser extent the Middle East and South America, but Ireland Inc. has been very very slow to get into markets there. This is a pity because Ireland has what they want , good quality food and drink, branded crystal and clothes and luxury items, education services in English, medical devices and healthcare consumer products and I'm sure a bunch of other stuff that I cannot think of right now . The multinationals in Ireland will not chase that from Ireland so it's up to indigenous business to understand this.

Enterprise Ireland need to step up to the plate along with local businesses and the education sector and RE-ORIENT. Get it! I'm talking China, India, Korea, Taiwan, Thailand, Indonesia, Malaysia, Philippines, Vietnam. You don't get access to this market by treating it as a 'sure if it'll happen it'll happen'. You have to make a serious effort at promoting brand Ireland and also sending people into the market regularly to make the connections and understand the market.

It's not that other markets like mainland Europe or the North America do not have the usual potential, but if you are looking for GROWTH, you need to know where to find it.

Cody Pomeray

ressem wrote: »

In an article in the Irish Times Fintan O'Toole makes the following statement...


Is this actually accurate? (Building presumably includes state motorway infrastructure as well as private building)

If so, then Fiannna Fail / Fine Gael's growth projections are reliant on a property re-inflation

Am I missing something here?

Industries prosper and decline over time. Given Ireland's improving (although overstated) cost competitiveness, there's no reason, in theory, as to why the projected growth figures can't be based on the increasing dominance of goods and services exports, the latter of which has seen growth in double digits.

I think the DOF's typically optimistic forecasts are unlikely given European and UK growth projections, but they aren't based on a return to a building boom.

I also don't like the use of the word "real growth" to refer to growth outside of the construction industry during boom times. Not least because that's not what "real growth" really means, but also because economic growth taking the construction industry into account, even in a bubble, is still economic growth.

gaius c

Geuze wrote: »

Our potential growth rate is more like 3%, maybe even 4%.

With our high cost base, I doubt it.

Geuze

The ESRI think that our potential GDP growth rate has fallen from 3.6% to 3% pa:

http://www.esri.ie/news_events/latest_press_releases/recovery_scenarios_for_ir/


"There are significant permanent costs arising from the current recession. Even with a world recovery in 2011, the current recession implies a 10% permanent loss of GDP, together with higher emigration and lower employment. As a consequence of the recession, the potential growth rate of the economy is likely to have fallen from 3.6 % per annum to 3% per annum."

ressem

Geuze wrote: »

The ESRI think that our potential GDP growth rate has fallen from 3.6% to 3% pa:

http://www.esri.ie/news_events/latest_press_releases/recovery_scenarios_for_ir/


"There are significant permanent costs arising from the current recession. Even with a world recovery in 2011, the current recession implies a 10% permanent loss of GDP, together with higher emigration and lower employment. As a consequence of the recession, the potential growth rate of the economy is likely to have fallen from 3.6 % per annum to 3% per annum."

That paper's from 2009.
It does point out though that the tightening of fiscal policy did little to sort out the economy when Finland's GDP dropped by 14%. The recovery correlated with the increase in competitiveness brought about by a 20% devaluation.

Industries prosper and decline over time. Given Ireland's improving (although overstated) cost competitiveness, there's no reason, in theory, as to why the projected growth figures can't be based on the increasing dominance of goods and services exports, the latter of which has seen growth in double digits.

Yes service exports have grown, and GNP continues to drop. As a result, I continue to ask which industries were the ESRI counting on for growth when they calculated that we'd be growing by this stage.
Geuze's linked publication mentions something called the HERMES model used to assess potential growth, but I'm undereducated in this area.
http://www.esri.ie/UserFiles/publications/20090513115638/RS007.pdf
Appendix 1.

realitykeeper

Question: If we were importing an extra 15 billion euro worth of goods every year, would our GDP still be growing? The reason I ask is because the government is borrowing 15 billion per year to prop up our insolvent economy and since this money has to be repaid (with interest) it makes sense to think of this imported money in the same way as we think of imported goods.