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ESRI: Irish Economy to Enter Recession
Read more about: Blogging, Economy
Yup, recession. We are going to be hearing a lot about it thanks to the ESRI quarterly report and forecast.
Forecast contraction this year 0.4%
Unemployment next year forecast at 7%
It anticipates that the economy will contract in size by 0.4 per cent this year after growing by 4.5 per cent in 2007.
This recession reflects a steep decline in domestic demand, according to the ESRI, which calculates that the volume of domestic spending this year will fall by 2.6 per cent. Investment spending is forecast to fall by 14.9 per cent while real consumer spending growth in 2008 has been revised downwards by the ESRI to just 1 per cent from 3 per cent just three months ago
The full ESRI report is out now and it looks pretty ugly. Recession this year with growth returning next year. A return to net emmigration for 2008 also seems on the cards. The question is whether they have undercooked the pudding on this one. Downward trends are not always based on fundamentals and once the logic of downturn kicks in – tightened spending and investment – it can take a long time to get out of a system.
The ESRI report may well be too positive on recovery in the coming months. I think it far more likely we will be in this until late 2009 or early 2010, which means that government will have a large task on their hands to decide what gets spent, what gets borrowed and who gets cut. They are going on holidays soon – they can be guaranteed the public will look even worse on that in a downturn than when we were all rolling in it.
Edit: To add that Moore McDowell may have beaten us all to it, plus analysis from Noel Rock here.
Over the last 15 months, each successive ESRI quarterly report has underestimated the economic downturn, and has been over-optimistic about the period of recovery. This is still the case. What evidence is there of an up turn in 2009?
The full impact of the collapse of the construction industry will not be felt for another 12 months at least. Equally, the effect of record high energy prices is only now beginning to work its way down the supply chain.
In all likelihood, 2009 and 2010 will be significantly worse than 2008.
The picture in 3-6 months time will be interesting.
The fundamentals of this recession are sound.
The Irish people stopped working a few years ago and just partied on borrowed money ever since. As far as I’m concerned, we’ve been in recession since about 2002 but have papered over the fact by borrowing money from abroad to import goods from abroad because we’re too lazy to make them ourselves – and too lazy to make any suitable exports in return.
We’re in damage limitation mode now, which means that it’ll be difficult to judge whether, for example, 10% unemployment is a good outlook or bad outlook from this juncture.
While it does appear that the government’s finances are in reasonable shape, with national debt being relatively low, it is only half the story. Irish people and banks are up to their eyeballs in international debt. The government manipulated the market by refusing to apply capital gains tax to property and therefore is to blame for the current mess, even if its own accounts are (currently) not looking as bad as they did in the 80’s.
We’ve been wasting so much of our labour building houses to the extent that we now have more empty houses than we did in 2002 (thanks Conor). You don’t need to be study the economy to see that’s unsustainable. If we had all our population working on building sites we’d starve to death in weeks.
Another interesting point Arron is that we have fewer houses per capita then most of Europe.
simon,
I think I was reminded of that before but I forgot. However, it doesn’t change things from the point of view of house prices. Compared to much of Europe, I’d guess we have a younger population and slightly larger families and hence we would be expected to have a slightly fewer houses.
Prices went from the standard income multiple of 3 or 4 up to about 9 over the last few years. Nothing actually changed to justifiably cause this. The immigration was matched by the rate that new houses were built. We are a quite sparsely populated land.
This madness caused the emigration which we’re going to see, which will free up more property. I’m not complaining as my rent is coming down!
Prices went from the standard income multiple of 3 or 4 up to about 9 over the last few years.
But in a few years time they will be needed. Forward planning.
The problem was relieing so much on it. With our tax system based on it. We Irish were always going to go Bull McCabe and build loads of houses. The problem was relying on it.