Ernst & Young report: cuts will "act as brakes on any recovery"

[feargach]

1.3 Backsliding is possible
Perhaps the biggest concern is whether the tentative recovery underway in ROI, and recovery expected to begin in Q4 in the UK (and thereby also NI), is the start of better things to come or merely a false dawn? Unfortunately there are a range of factors suggesting a period of
backsliding, or a so called ‘double dip’ recession, is possible.

[PaddyJoe McGillycuddy]

Any chance of a link?

[KeyshawnK]

With the recession we have experience, it is important that we will save enough money especially if you are laid off in the company. A company undergoing a layoff is never fun for employees. (However, management still gets ivory back scratchers – now who should be getting laid off, the people who can't steer the ship, or the ones scrubbing the deck?) That said, a layoff of employees doesn't guarantee that a company will return to profits afterward. Right now, the Small Business Administration offers American Recovery Capital loans, for companies that were doing well before the recession, and companies can use a furlough, if done legally. (Unpaid time off, but notification must be issued well in advance.) Though it isn't easy to contemplate a layoff, it won't guarantee instant cash, or that an already sinking ship will float again.

[Tombo]

Actual source of this analysis: Oxford Economic Forecasting

Not a great track record on understanding Ireland's economic issues.

Oxford Economics

1 February 2008: Falling housing market and rising unemployment to slow consumer demand this year, bringing GDP growth down to 3.6%

At least 2 months into the recession (arguably 5) and still out to lunch.

I have spelt out your errors on this in other threads. A Keynesian response to a Classical recession is the wrong one. We can have 1974 or 1981 (if you really know your economic history).

There is no doubt that a pro cyclical fiscal policy will not promote short-term output, but it is the only sensible thing to do. YOu appear to have learnt some basic circular flow economics once and hold up a single view of the world to every situation.

[Sync]

Maybe I'm blind, but I just can't see how the OP quote has anything to do with the topic.

[Tombo]

Maybe I'm blind, but I just can't see how the OP quote has anything to do with the topic.

It is difficult because of the poor citations and links etc. BUt I assumed it refers to this:

Unfortunately there are a range of factors suggesting a period of backsliding, or a so called ‘double dip’ recession, is possible.

Which was presumably an opening to a reference to the flagged contractionary budget(s) to come in Ireland.

[feargach]

Maybe I'm blind, but I just can't see how the OP quote has anything to do with the topic.

It's a direct quote from the report.

http://www.ey.com/Publication/vwLUAssets/EY_Economic_Eye_-_2009_Winter_Forecast/$FILE/0249_Web.pdf

Can you explain how the economy is less prone to a further demand-led catastrophic collapse under a classical recession than a Keynesian one? I think you´re misreading it badly, but I'd like to give you a shot to clarify your reasoning.

[Sync]

Feargach, sorry, I wasn't making a point about what was written in the report, I just meant I couldn't see any link to the report at all. So all I could see was the topic name and then your pasted line.

I agree with 1.3 where it says:

The impact of public expenditure cuts (and the psychological
impact the removal of the feeling of job security in public service
will have especially in NI) and a rising tax burden, could well reign
back consumer spending. Private consumption remains a significant
component of overall GDP.

However I also agree with 1.6

As the two economies head towards recovery, the longer-term prospects
for the ROI economy remain more favourable, provided public finances can
be brought back under control without significant civil unrest or marked
changes to headline corporate tax rates.
• The export focus and high skills content of much of its export base
place ROI well globally.
• Furthermore its strengths are well recognised and not easy for
competitors to compete against.
• Domestically pressures will remain and the bubble provided by the
property boom will not return meaning the boom era of strong FDI
flows and rapidly expanding consumer spending is unlikely to return
in the near future. This means that outlooks for ROI are more modest
than historically but favourable in comparison with other economies

So yes there's a risk that cuts may result in a slight backslide. I believe (and my interpetation of this report is that they believe as well) that it's the risk of that backslide is outweighed by the importance of controlling public spending.

Interesting passage on NAMA

In principle the scheme is to be broadly welcomed. The beleaguered
banks will get a significant set of liabilities off their balance sheet and
in the longer-run many of these assets could prove to offer a very
significant return for the taxpayer. However the process remains risky
and the implications for the taxpayer uncertain, a risk in the current
climate that causes unease for many.
Recently debate has focussed on potential clawback for the taxpayer
should the loans fail to perform and on the treatment of the debt
in national accounts. It appears that the debt will not appear on
the government’s figures. This is extremely helpful as it would have
significantly raised national debt levels. There also appears to be
agreement over the potential for taxpayer clawback.
There is growing uncertainty though over whether banks will be able to
sell assets to other investors if they can agree more favourable terms
elsewhere. Whilst on the face of it this appears a sensible ‘market led’
approach, it does raise the risk that the taxpayer will be left with the
poorest potential assets that no-one else wants. For NI the Executive
has an advisory role in NAMA which will help to allay fears that assets
outside of ROI might have been less favourably treated in an effort
to bring maximum benefits locally. Though it remains unclear exactly
what proportion of the assets may reside in NI (it is estimated to be in
the order of 5bn Euro).
Overall the NAMA process represents another indication of the ROI
government taking action to solve a significant economic problem.
In this sense it should be very welcome. Given the complexity of the
plan, uncertainties over market valuation and the future taxpayer risk,
there is clearly a high level of debate and concern which is to be both
expected and welcomed. There is real potential that in the longerrun
many of the assets could perform well for the taxpayer (indeed
many are paying assets even now) and given the short-term benefits
it brings to the banking sector, on balance the economic risks appear
worth taking. As clarity over the nature of the assets transferred and
the price paid emerges, we will revisit the economic impact of NAMA
on the Economic Eye forecasts more thoroughly.