Irish Economy: Quartely Economic Commentary July 07

[pfkf1]

Just came accross this on the internet, don't know whether it has been posted up here before, but it makes for some interesting reading:

http://www.finfacts.com/econ2000.htm

To summerise what it says:

An estimated 17% of direct tax revenues came from the property/construction sector in 2006, compared with 4% in 1995.

The ESR says that as the housing boom ends, Gross Domestic Product (GDP) growth will slow to 4.9 per cent this year and fall to 3.7 per cent in 2008.

Investment in housing will fall 4.7 per cent this year and by more than 6 per cent next year

consumer price inflation will decelerate from 4.9 per cent this year to 3.0 per cent in 2008. However, the forecast is based on an assumption that that only one further European Central Bank rate rise of 0.25% to 4.25%

current public spending can be held to a growth rate of 6.5 per cent next year, compared with the 12.7 per cent public spending growth rate expected for 2007.

Unemployment, which ran at a rate of 4.4 per cent in 2006, will increase to 5 per cent next year.

A less buoyant construction industry will mean employment growth will fall from 87,000 new jobs in 2006 to 58,000 this year and 25,000 in 2008.

migration of workers will also fall, with net immigration falling from 70,000 last year to 50,000 in 2007, before halving to 25,000 next year.

it is critical that the economy shifted away from construction and focused more on the services sector and other industries.

correction in the property market could be more severe, with prices falling by 5 per cent each year for the next decade.

Kelly says that up to 60 per cent could be wiped off the real value of houses over the next eight years if the Republic's housing market follows the same pattern as those in other countries.

Adjusted for inflation, this would translate into an annual fall in real average selling prices of 6-7 per cent or 40-60 per cent over the next eight to nine years.

A housing bust in the Republic has the potential to be even more severe than those in other OECD countries because of the strong growth in the number of new houses built here in recent years and because 15 per cent of the housing stock currently lies empty.

In most economies, the housing sector accounts for only 5 per cent of gross domestic product (GDP), but in the Republic, that figure is 15 per cent, the paper says.

house completions would fall to 82,000 in 2007, down from 92,000 last year, and then fall to 76,000 in 2008.

This slowdown contributes to its forecast of a further reduction in real GNP growth next year, with growth of 3.7 per cent anticipated.


The slowdown in economic growth will impact on the public finances, with growth in current revenues halving in 2007 relative to 2006. The ESRI forecast for the Exchequer Balance shows a deficit of €1 billion in 2008, a deterioration of €3.3 billion on 2006.


The trade balance continues to decrease as the growth in imports is expected to outstrip that of exports in 2007 and 2008, despite a favourable international setting. This contributes to the current account deficit widening to over 5 per cent of GNP in 2008.

The ESRI expects employment growth of 2.9 per cent in 2007, slowing to 1.2 per cent in 2008 driven by a deceleration in construction sector employment growth.

----------------------------

It generally looks bad and bleak, if the government do not do enough to stimulate other areas of the economy and not just the construction industry, the could well be a mighty fall.

[Rapisco]

Are ya sure George Lee didnt write that???

Jaysus.....

[pfkf1]

Are ya sure George Lee didnt write that???

Jaysus.....

I believe most of the figures are from the ERSI

[Insider2007]

What puzzles me is how the government allowed the Irish economy to be so dependent on the construction sector. Surely they could have seen that this would have caused problems and used targeted measures to try to boost over sectors to compete? In some ways if the Celtic Tiger was largely the Constuction Tiger then the boom had its foundations built on sand. It was foolish.

[aodh_rua]

What puzzles me is how the government allowed the Irish economy to be so dependent on the construction sector. Surely they could have seen that this would have caused problems and used targeted measures to try to boost over sectors to compete? In some ways if the Celtic Tiger was largely the Constuction Tiger then the boom had its foundations built on sand. It was foolish.

Rather than an either\or Celtic\Construction Tiger, there have been two phases of growth. The first ran from the mid-nineties through to around 2001\2002 and was based on competitiveness, export growth and expansion of our productivity. The second was driven by excessive credit, and a lax approach to regulating the lending sector.

In both cases governments have things to their credit, and more recently things they need to take responsibilty for.

[kerrynorth]

This report has been out a while and I discussed on a thread how way out it is e.g. the ESRI based their forecast for 2008 on 76k completions! Even the AIB now only say about 60k and I reckon around 50k. As a result I reckon 2008 growth at 1pc and for employment to actually contract.

[jpc]

Easy collection of revenue.Not making politically difficult economic/infastructure decisions has been the defining characteristics of goverment in this country for the last decade and a half.Now we will have to dine on the consequences.

[Ard-Taoiseach]

And yet office market take up is set to top last year's record, the CSO has upgraded its 2005 growth figures to 5.9%, business start-ups remain strong, exports are up 9% on last year, retail sales are a whopping 9.9% up and we're supposed to have 4.9% GDP growth this year, nonsense.

Btw, the EU allows us to borrow €5 billion a year under the Stability and Growth Pact and most of our capital spending comes out of current income, thereby distorting the budgetary situation of Ireland. Most countries fund capital expenditure out of long-term income such as a 20 year bond, this means we have plenty of wriggle room even if an economic slowdown occurs.

[Coles]

And yet office market take up is set to top last year's record, the CSO has upgraded its 2005 growth figures to 5.9%, business start-ups remain strong, exports are up 9% on last year, retail sales are a whopping 9.9% up and we're supposed to have 4.9% GDP growth this year, nonsense.

Btw, the EU allows us to borrow €5 billion a year under the Stability and Growth Pact and most of our capital spending comes out of current income, thereby distorting the budgetary situation of Ireland. Most countries fund capital expenditure out of long-term income such as a 20 year bond, this means we have plenty of wriggle room even if an economic slowdown occurs.

That's great news, Ard-Taoiseach! I think I'll run out and max my credit card. Might even buy a few houses...

[supamolli]

I wouldn't call that bleak by any means. Challenging yes, bleak certainly not.