Analysis/Comment
Irish Economy: Economists announce new dawn; "Kickstarting" growth from behind a desk! ECB director terms them delusionists
By Michael Hennigan, Founder and Editor of Finfacts
Jan 19, 2010 - 8:30 AM

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Fianna Fáil Parliamentary Party meeting in Athlone - 14th September 2009: Minister for Finance Brian Lenihan speaking to Brendan Keenan, Group Business Editor, Independent Newspapers

Irish Economy:  Good news at last as economists announce a new dawn after a winter of gloom. Lower costs are already "kickstarting growth" and from behind a desk, increasing shares in export markets have already been discerned from recent cost reductions. However, a European Central Bank (ECB) executive director on Monday, said such people are delusionists. One or possibly two more tough Budgets are needed and rising exports will power rapid growth from 2012.

Many people have wondered if a dyed-in-the wool conservative political class and their acolytes in the senior public service would not be amenable to needed reform after the calamitous crash of the Celtic Tiger, what would it require to get real change?

Well, what's there to fret about now? Can't we return to traditional values, a broken governance system and business as usual? Shur, it will all work out in the day!

As for "transformational" public service reform, the options price on that will surely rocket.

We may not even get bad weather for another 30 years!. Lessons to learn my elbow!

The Irish Independent reports that ESRI economist John FitzGerald said: "We will see a vigorous recovery in 2012." He added that the economy could expand by as much as 5% a year between 2012 and 2015.

Speaking at the 'Checkout' annual retail conference in Dublin yesterday, he said a short-term boost to the economy was likely to kick in during 2012 as consumers once again started spending money. Workers have been pouring money into savings accounts, building financial security nets in case they lose their jobs as the employment rate hit 12.5%.

Dr Alan Ahearne, adviser to the Minister for Finance said a number of factors gave rise to optimism. He said there was a 5% improvement in unit labour costs since the autumn. "This is already kickstarting growth. We are starting to gain market share but we need to do more as we lost our competitiveness during the boom years," he said.

Tossed in the stew, is a reference to a special report from Bank of Ireland economist Dan McLaughlin who forecast that a substantial increase in exports in 2012 would help a recovery.

In fairness to Dan, he has curbed the unbridled optimism of the halcyon days of the bubble but give it time. Whether he still believes as he did in 2007, that the economy wasn't unbalanced, we don't know or will we know.

As for the three referred to "experts,"  when credible forecasts for economic growth in the United States and the Eurozone in 2011, are less than 2010, because of the exits from governments' and central banks' massive stimulus programs, what value should we give to Irish forecasts for 2014 or 2015?

Zero.

How can forecasts be taken seriously without reference to the very uncertain economic outlook for the developed world?

The prognostication on exports is dependent on the activity of the foreign-owned sector in Ireland.

It's easy to refer to "boring" European growth of 3% in future years compared with Irish growth of 5%.

As for the claim from Alan Ahearne: "We are starting to gain market share.. ." - -  he appears to have bought into the official spin that permeates all statements on exports.        

Calling a spade a spade, there is one word for it: bullshit.

How can he make such a statement from Government Buildings, in the absence of credible data to support the claim?

When John FitzGerald issued the last Medium Term Review in early 2008, he had used $70 a barrel as the reference price for crude oil.  Within months, the price had doubled.

A vigorous recovery globally will result in another rise in commodity prices but more importantly, looking at the coming years, for a country like Ireland dependent on exports, it must have regard to the financial problems that confront the rich countries.

The rise in public debt and bank deleveraging will make it difficult for the global economy to return to past growth rates, European Central Bank Executive Board member Lorenzo Bini Smaghi said on Monday.

Bini Smaghi said he did not expect the global economy to return to its pre-crisis situation, as this had been unsustainable.

"My feeling is that those who think like that are deluding themselves," he told Frankfurt's Chamber of Commerce and Industry.

UK Chancellor of the Exchequer Alastair Darling told the Financial Times on Monday that halving the deficit in four years was “non-negotiable” and that he intended to use his Budget - - expected in March - - to give more detail on where the axe will fall.

Labour has promised to protect health, education, police and overseas aid budgets, prompting the Institute for Fiscal Studies to predict real terms cuts of 16% for all other departments.

Darling declined to deny reports that the Treasury had put the figure at 17%. “The Treasury has hundreds of forecasts and hundreds of different permutations,” he said.

Surely that matters for the outlook of indigenous exporters dependent on the UK market?

SEE today's Finfacts article: Rich countries face years of belt-tightening to reduce high debt levels; Deleveraging following crises lasts six to seven years on average

We lost export related jobs in the period 2000-2009 and in the years ahead, against a more difficult economic backdrop, it's going to be all grand!

SEE Finfacts article, Dec 2009: The challenge of creating 160,000 new Irish jobs

We at Finfacts would like to join in the party and would indeed welcome rising income ourselves. Growth will return to the Irish economy in 2011 but we well know what is going to happen if the ignorant cheerleaders of the bubble and the vested interests return to dominate politics and the media.

As for the potential of big export opportunities, in the key emerging markets of China and India, goods exports to China from Ireland are less than we export to Switzerland, while only about 6% of the shipments to China, are from Irish owned firms. Total exports to India are insignificant.

Caution would surely have the potential to have some long-term value when no reform worth mentioning has been tried so far. We thought in the recent past that we had invented the free lunch. Let's not fall for Ballymagash economics again.

SEE: Finfacts articles, Jan 2010:

Irish and Eurozone cost competitiveness 1999-2009

Foreign-owned firms responsible for 89% of Irish tradable goods and services exports in 2008; Jobs in sector down 44,000 since 2000


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