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Ireland in freefall: When Recession becomes Depression

by Frank Schnittger Tue Jul 15th, 2008 at 09:51:31 AM EST


Nothing has been quite as sudden, or as rapid, as the fall from grace of the Celtic Tiger. Economic forecasters have been falling over each other with ever more gloomy revisions of previous forecasts - often made only a few months ago. An Taoiseach (Irish Prime Minister) has complained that we are in danger of "talking ourselves into a recession".  One wit in the Irish Times retorted by suggesting that on this logic we can therefore talk ourselves out of a recession as well.


Of course forecasters have also been saying that they knew all along that our building boom was unsustainable, that house prices had to fall, and that a correction was inevitable.  The problem is that they have been saying this for years and the economy just kept motoring on at rates in excess of 5% growth per annum.  The fall from grace has been a bit like the cartoon character who races over a cliff and only starts to fall when he realises he has been threading on thin air for some time.

The problem was partly that there were a lot of vested interests tied into this growth in the building industry, in particular.  Ireland was building up to 90,000 new houses a year (half the total for the whole of Britain - with a population only 7% that of Britain).  The leading political party, Fianna Fail, has close ties to the Building industry and the Government became ever more dependent on huge windfall tax gains from Stamp Duty and VAT on houses.  The Banks and Mortgage providers were also major beneficiaries and it was mostly their economists who had been talking up the economy.

The halving of housing output this year - to perhaps 45,000 will knock 4-5% off GDP alone.  Had this occurred at a time of general wellbeing, it would have been a mere temporary blip on the radar - reducing growth for one year from perhaps 6% to 2% on a once off basis and affecting only those employed in the building and associated materials and finance industries.

But the timing couldn't have been worse.  The US sub-prime crisis, which has now become a full world-wide credit crunch has resulted in the Irish banks losing 75% of their value in the last year - despite still being very profitable and relatively cash rich enterprises.  Interests rates are going up just as we need them to go down because Ireland doesn't register on the European Central bank radar.  Oil and commodity prices - the real causes of inflation - are hardly likely to be significantly effected by the rise in interest rates which will however help to choke off domestic economic activity.

Consumer confidence has fallen through the floor and Retail sales fell 4.8% in May - CSO - The Irish Times - Tue, Jul 15, 2008

The volume of retail sales declined by 4.8 per cent in the year to May, the fastest rate of decline in over 20 years figures released by the Central Statistics Office today showed.

A 13.9 per cent annual drop in electrical goods sales dragged down retail activity in May, contributing to a fourth consecutive month of decline, according to the CSO. Sale of furniture and lighting fell 11.1 per cent during the 12 months to May.

A recession is usually defined as two succeeding quarters of negative growth, but it looks, on these figures, that we are looking at a full scale depression.  One firm of stockbrokers put it as follows:
Goodbody Stockbrokers - News and Comment - Monday's Thoughts

The Irish economy is facing its first contraction in GDP since 1983. GDP is now expected to contract by 2.2% in 2008 (2.1% GNP). Sharply declining construction output, a weakening labour market and decreasing consumer spending have all contributed to this decline. Internationally, higher food and energy costs, appreciating currency and interest rate hikes are also adversely affecting the economy. With construction expected to contract further and continuing labour market weakness, recovery is not expected until 2010.

Property values have dropped by 25% and are expected to drop another 15% by 2010 - a drop of perhaps 45% drop from peak to trough.  The stock market is down over 50% since the start of the year and is currently in free fall - dropping by as much as 5% on some days (including today).

May saw the largest rise in unemployment in many years and redundancies are now spreading beyond the building sector and Davy stockbrokers have just announced 75 job cuts because of a drop in private clients business.  

The Government - initially distracted by the resignation of Bertie Ahern and the Lisbon Referendum has belated begun to respond - announcing €440M of public spending cuts this year and a plan to cut €1Billion next year.  However beyond cutting overseas development aid by €45Million and belatedly seeking to put a cap on lawyers fees for the Tribunals (estimated to cost €1 Billion!!) there have been few specifics.

The National Social Partnership talks are currently in progress and there have been the usual calls for wage restraint and even one (from the Small Firms Association) for a cut in the minimum wage of €8.65 per hour.  There seems to be a consensus that the National Capital Development Plan which is focused on infrastructural development should not be touched - although it is to be hoped that there will be a better focus on value for money and project management controls on overspends.

It is 20 years since Ireland faced a similar crisis and the National Partnership Process (and EU aid) were instrumental in overcoming the problems the last time around.  However it should also be born in mind that Ireland is in an immeasurably stronger position this time around.  GDP/GNP has more than trebled in that time, living standards have risen to close to the highest in Europe and the debt/GNP ratio has fallen from c. 100% to 25%.  Unemployment is forecast to rise to 6% which is still well below the EU average and there are also some positive signs on the horizon.

Firstly the Northern Irish Peace process continues to pay a peace dividend with Bombardier investing €624m in its Belfast manufacturing plant (for wings for a new generation of jet aircraft). Ireland tops the latest statistics for EU Industrial growth for May (+13% compared to an EU average of -2%).  Ireland has an abundance of wind energy, some natural gas has been found off the west coast and the largest find of Gold in the UK and Ireland has just been announced in the small border village of Clontibret which doesn't has much else going for it!

However there are also some major structural problems which need to be addressed.  The Irish public health service still has unacceptable waiting lists and gaps in services despite a doubling of Government funding - much of which seems to have been squandered on a huge management bureaucracy and some of the highest salaries in Europe.

The lack of accountability and a culture of efficiency and value for money in the public sector needs to be addressed.  Many recent house buyers are sitting on negative equity largely because of a building bubble which was promoted by the Government, building and financial services industries.  Insurance costs make many marginal businesses unviable and there are many quasi monopolies in both the public and private sectors who can charge more or less what they like for indifferent services because of a lack of competition or choice in a small market.

Overall, I am confident that Ireland will come good again in the next few years, but that can be a long time if you are young, looking for a job, sitting on negative equity or having to pay still exorbitant rents.  A lot of people have done very well over the past few years and a lot of waste has been allowed to prosper within the system.  It's going to be a lot tougher for the next few years but the level of societal cohesion still evident in Irish society combined with the national partnership process should see us through.

Display:
Is there a technical definition of "Depression"?
by Metatone (metatone [a|t] gmail (dot) com) on Tue Jul 15th, 2008 at 01:45:49 PM EST
A depression is a severe economic downturn that lasts several years - so it is obviously premature to call the Irish recession a depression.  However since it is forecast to last 2/3 years it's not that outrageous to use the term in this context.  I suspect the word is almost banned in mainstream discourse!

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 02:07:41 PM EST
[ Parent ]
Good diary, much appreciated!  

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Wed Jul 16th, 2008 at 05:20:41 PM EST
[ Parent ]
European Tribune - Ireland in freefall: When Recession becomes Depression
An Taoiseach (Irish Prime Minister)
Why the common insistence on refering to the Irish Prime Minister as 'An Taoisech' in English language publications? Very rarely do we write "Statsministern (the Swedish Prime Minister)", for example. Is there a significant different in the office, or is it purely Irish prickliness on English vs. Irish language?
by someone (s0me1smail(a)gmail(d)com) on Tue Jul 15th, 2008 at 01:58:53 PM EST
Because that's what he's called in English usage here and calling him "Prime Minister" is just wrong. Anyway, with the spillage of UK media into Ireland, a reference to "the Prime Minister" would mean Gordon Brown.
by Colman (colman at eurotrib.com) on Tue Jul 15th, 2008 at 02:03:01 PM EST
[ Parent ]
And the English language version of the Irish Constitution also refers to An Taoiseach as far as I can recall (- my PC doesn't like long pdf documents at the moment).  The office is broadly similar to the UK PM in terms of powers and role definition but superior to (e.g.) the French PM who is very much subservient to the French President.  I think it is no harm to emphasise the constitutional uniqueness of the role in each member state.   "Prime Minister" is very much a generic term for head of Government.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 02:22:10 PM EST
[ Parent ]
Jospin was not subversient to Chirac.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jul 15th, 2008 at 04:51:00 PM EST
[ Parent ]
Co-habitation relationships can be difficult to define - but could Chirac not hire or fire Jospin, at least in theory?  

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 04:57:01 PM EST
[ Parent ]
Nope :

Legifrance - Le service public de l'accés au droit - Constitution

Art. 8. - Le Président de la République nomme le Premier Ministre. Il met fin à ses fonctions sur la présentation par celui-ci de la démission du Gouvernement.

The president can only fire the PM if the PM presents his resignation. When the PM and the president come from the same party, it is traditional that the PM signs a blank resignation letter before coming into power.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Tue Jul 15th, 2008 at 05:35:40 PM EST
[ Parent ]
Well, it is a known thing that the prime minister gives a resignation letter to the president with no date on it at the moment of nomination, for later use if needed.

Constitutionally, the president cannot remove the prime minister, but he actually can.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Jul 16th, 2008 at 11:12:30 AM EST
[ Parent ]
Woops should have read your post till the end.

Anyway, my understanding is that it is NOT limited to when they are from the same party.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Jul 16th, 2008 at 11:13:14 AM EST
[ Parent ]
Wait, you mean Gordon Brown's not the PM of Ireland, too?

(runs)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Jul 15th, 2008 at 02:44:02 PM EST
[ Parent ]
It's questionable as to whether he is PM of England at the moment.  Many English would wish him back in Scotland.  He apparently still has a residual role in  N. Ireland, although it would be hard to tell from his pronouncements on the issue.  Isn't he your man in Iraq as well?  The Beast of Basra?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 03:53:12 PM EST
[ Parent ]
PS - you're one to talk when you don't even have a PM.  Who is the Prime Minister of the USA?  Is the White House Chief of Staff the closest approximation - is that role even mentioned in the Constitution? Maybe the Great Gordo should take over the Colonies again?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 04:17:17 PM EST
[ Parent ]
We have a president.  Why demean someone with the title of PM when we have Britain's to bend over?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Jul 15th, 2008 at 06:30:51 PM EST
[ Parent ]
Hey, don't knock Prime Ministers.

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Tue Jul 15th, 2008 at 06:37:48 PM EST
[ Parent ]
You mean Bush could come back as Chief of Staff? <wince>

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 06:45:52 PM EST
[ Parent ]
If it's Chief of Staff to Putie-Pu -- well, shit, where do we sign?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Jul 15th, 2008 at 07:05:07 PM EST
[ Parent ]
You think Putie stupie?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 07:09:47 PM EST
[ Parent ]
Not at all.  I think he'd get quite a kick out of it.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Jul 15th, 2008 at 07:13:24 PM EST
[ Parent ]
Bush could start by serving him his dinner

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 07:26:32 PM EST
[ Parent ]
"Vladimir hungry.  Vladimir want eat!"

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Jul 15th, 2008 at 06:59:50 PM EST
[ Parent ]
who took my knife and fork?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 07:12:25 PM EST
[ Parent ]
Poor Ireland...so close to england, so far from god.
by redstar on Tue Jul 15th, 2008 at 02:56:04 PM EST
god being the good ol' US of A?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 03:49:47 PM EST
[ Parent ]
Not even a good joke, Frank!

But, it could be better if those poor Irish all got to the closest coast to their peat-burning sod hut, pulled out an oar and rowed the whole island to, say...the Bay of Biscay?

Better check with President Sarko first though. Might have to vote yes to get approval.

by redstar on Tue Jul 15th, 2008 at 03:59:02 PM EST
[ Parent ]
Well a former Tanaiste (Deputy Prime Minister) did say that she thought that Ireland was closer to Boston than Berlin.  Paris didn't even rate a mention.  That's where we send our rejects like Joyce and Beckett.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 04:20:05 PM EST
[ Parent ]
Actually, given we're talking about Ireland, I wasn't thinking of Paris so much as Lourdes.
by redstar on Tue Jul 15th, 2008 at 04:28:16 PM EST
[ Parent ]
Nowadays its more likely to be the holiday home in Spain

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 04:59:11 PM EST
[ Parent ]
(Personal aside - there are irish in my family, my dad is irish actually. Don't know too many of the family, only my grandmother and a couple of cousins really, mostly over there. The two cousins I know best are both priests, one a jesuit, and Lourdes is the place my grandmother was always asking me why I hadn't been yet even though I lived "so close". And my dad? Professor at various Catholic universities in the us.

That's as much about Ireland as I needed to know growing up, and unfortunately was happy to keep it that way.

I'm glad economic development and eu membership has made it a better place...)

by redstar on Tue Jul 15th, 2008 at 06:02:40 PM EST
[ Parent ]
redstar:
Poor Ireland...so close to england, so far from god.

Don't worry.  It was clear from your missive that you had suffered greatly :-)

redstar:

I'm glad economic development and eu membership has made it a better place...)

That was the devil's work

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 06:10:34 PM EST
[ Parent ]
That was the devil's work

Now you're sounding like my grandmother!

by redstar on Tue Jul 15th, 2008 at 06:12:19 PM EST
[ Parent ]
 One wit in the Irish Times retorted by suggesting that on this logic we can therefore talk ourselves out of a recession as well.

i just got a set of dvd's on how to gain more 'consumer confidence'.

a lot of mirror exercises of the ' i am worthy to be a successful consumer' type, to do while shaving.

tips on how to convince the bank to loan you more money because of your brimming confidence that the economy is about to 'turn the corner', (smile, look happy, glossy denial of inflation's effects on real life), deep breathing (while opening bills), and looping mantras that against a background of relentlessly major key muzak, boost your consuming power to previously unimaginable heights, as you take on board the 5 major tenets of consumer faith, (while stuck in bumper-to-bumper heavy metal traffic clouds of zyklon-b):

1 rip
2 rape
3 run
4 lie
5 die shriven

oops i meant 'shrivelled'.

what was i thinking?

(not much...)

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Tue Jul 15th, 2008 at 05:15:38 PM EST
It took a whole set of DVDs to tell you that????

May you live shriven

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jul 15th, 2008 at 05:29:50 PM EST
[ Parent ]
Don't knock it - it's working for the seller.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jul 15th, 2008 at 05:58:05 PM EST
[ Parent ]
I saw an Irish fellow on another blog explaining that if he were to move to Moscow, he'd be an "economic refugee."

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Tue Jul 15th, 2008 at 06:42:00 PM EST
Building completions down 57 per cent - The Irish Times - Thu, Jul 17, 2008

The total number of new buildings completed during the first six months of 2008 is down 57 per cent compared to the same period a year ago.

According to new figures released today by GeoDirectory, a company jointly established by An Post and Ordnance Survey Ireland, the number of residential and commercial buildings completed across the country totalled 26,289. This compares with 60,781 buildings finished during the first six months of 2007.

----

 GeoDirectory predicts that approximately 40,000 residential and commercial buildings will be completed across the country this year, compared to 80,000 in 2007.



"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jul 17th, 2008 at 11:16:04 AM EST


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