The Commentary says that although in theory affordability has been improving over recent months due to the combination of falling house prices and stable ECB interest rates, it now includes a practical caveat in that conclusion. Due to a wave of innovation over the past decade, mortgage products became available to an increased number of potential homeowners. This manifested itself in the form of increased loan-to-value ratios, lower retail interest rates and longer mortgage terms. The increased loan-to-value ratios were sufficient to counter the difficulty that potential homeowners would have in raising the initial deposit. Due to the recent tightening of lending standards, this process seems to be in reverse. For example, 100% LTV financing, which accounted for 36% of total first-time buyer mortgages in 2006 is now largely unavailable. Therefore, access to increased equity for a house purchase may delay the likely upturn in demand due to falling house prices.

...and  commercial  building  is  likely  to  fall  in  2009  -  Commercial construction  has  enjoyed  an  impressive  performance  in  recent  years. However,  this  is  a  very  cyclical  industry,  and with demand prospects weakening  and  credit becoming less freely available,this industry is now expected to contract in 2009.

Composition changing, with a large pickup in self mployment ...Goodbody says that a notable feature of the Q4 2007 QNHS (Quarterly National Household Survey) data was the significant increase in those being self-employed. In the final quarter of the year, 58% of employment growth was accounted for by the self employed category, a marked increase on the 38% contribution in Q3. This unprecedented contribution is due, in a large part, to construction sector employees taking up employment on a self employed basis, and, possibly, operating in the RMI (Repair/Maintainence) sector.

There has also been a significant pickup in part-time employment, accounting for over half of job gains in the year to Q4. A year earlier, part-time employment accounted for less than 10% of job gains, meaning that recent employment growth has been of a lesser quality. Given that a similarly high dependence was seen in Q3 2007, this may be the start of a persistent trend. Such a contribution from part time employment has not been seen since Q3 2003, a time of distinct weakness in the labour market as mentioned above.

Migrant proportion of workforce underestimated...Dermot O'Leary says how these changing dynamics impact on unemployment remains to be seen. Importantly, the recent QNHS release revealed thatthe proportion of foreign nationals in employment had been starkly underestimated up to now. After reconciling the Census data with the QNHS, it now appears that 15.7% of those in employment are of foreign origin, compared to the previous estimate of 11.6%. While all sectors saw some degree of underestimation in relation to foreign national participation, the main areas were those of the wholesale and retail and hotel and catering areas. Overall, this implies that there is a significantly larger mobile element of the working population than thought heretofore. While inward migratory flows will have a large bearing on the outlook for unemployment, the mobility of the present workforce is also an important consideration and is something that is very difficult to get a handle on.

Future migratory flows will be critical for unemployment rate...On the former, it appears that a moderation in inward migratory flows is currently underway. The Commentary says that data on PPS numbers reveal a 41% decline in issuances in the first quarter of the year (see Appendix). This points to slower growth in the labour force in the months ahead. In recent years the pace of labour force growth has closely matched that of employment growth and a continuation of this would lead to only moderate increases in unemployment. Nevertheless, given the trends in the Live Register data, it is likely that the unemployment rate will breach the 6% rate in the short term. Goodbody sees unemployment edging up to 6.6% by the end of 2008 on the basis of net migration flows halving relative to 2007. A flat unemployment rate forecast of 6.6% in 2009 assumes that net migration falls close to zero. Against this challenging backdrop of large pickup in unemployment, muted employment growth of just 0.5% (on average) is expected this year. However, it is very likely that the annual rate will be in negative territory by the end of the year. Conditions will remain similarly difficult into next year also, where the broker forecasts a still subdued increase of just 0.2% employment growth for that year.

Strong  Government  hand  required... Goodbody says that without access to monetary levers, the Government’s  response  to  the  slowdown will be crucial. Although capital spending plans for the next number of years are well ahead of international peers,  Goodbody says that  an  acceleration of the roll-out of the National Development  Plan,  rather  than  a possible delay of some projects, is the best  course  of action. While this will come at the expense of larger than desired  budget  deficits,  it  is  a short-term cost of both smoothing the cycle  and  increasing  the productive capacity of the Irish economy in the medium-term. To do this, current spending must be kept in line with nominal economic  growth  (3-4% in 2009) and restraint must be achieved in upcoming wage negotiations.

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