Irish Economy: Goodbody says in an economic report published today that Ireland will emerge from recession during the second half of this year, and it revised its previous GDP forecast for 2011 from 2.4% to 2.8% due to higher exports. The cost of banking crisis may amount to €33bn or 20% of GDP (gross domestic product).
The broker has left its estimates for economic growth for 2010 largely unchanged at -1%, while at the same time upgrading its 2011 forecast to 2.8% on the back of a higher contribution from net trade. Concerns about the consumer lead Goodbody to believe that a recovery in domestic demand will not emerge until 2011. There has been further progress on the three challenges that Goodbody has talked about for twelve months – improving competitiveness, reducing the budget deficit and restoring the banking system to health. Goodbody believes that the Government’s announcement last week on the banking sector should deal with the crisis in a ‘once and for all’ manner.
The broker says it is clear from last week’s announcements that the Government is intent in drawing a line in the sand in relation to the Irish banking system. Although the Government will have a significant shareholding in the system, the higher capital requirement ensures a more stable banking system as well as increasing the possibility of an improvement in credit availability, which are both positives for Ireland Inc.
However, it says that is not to diminish the enormous overall cost of the crisis. The cost to the taxpayer of the recapitalisation may amount to €33bn, which amounts to 20% of GDP and is significantly more than Goodbody previously estimated and well ahead of an “average” banking crisis in developed economies over the past forty years of 11% of GDP. The biggest proportion of this stems from Anglo Irish Bank, which may end up costing the taxpayer €22bn.
Despite this, Goodbody says it believes the economy is now heading in the right direction. “Although economic activity on the ground is still quite weak, we are encouraged by the degree of progress that has been made in relation to the policies that will eventually lead to a recovery in the economy, and we now have a clearer idea of the overall cost of the banking crisis which should bring some more certainty back into the system”, said Dermot O’Leary, chief economist, Goodbody Stockbrokers.
The new report also focuses on expanding Goodbody’s previous analysis of the vacant housing stock, concluding that it is very much a regional issue. While Goodbodys estimate that the gross vacancy rate currently stands at 15% in the country, it stands at 10.5% in Dublin, but at 19.9% in the Border counties. The broker believes that the market in the Greater Dublin area will recover first. The price adjustment in this area to date is 40%, Goodbody believes that the overall drop will be in the order of 50%.
Finfacts article, March 30, 2010; State funding of Irish banks may amount to €32bn - - 1 year's tax receipts; Banks accused of "reckless" lending and "shoddy practices"