Will 2010 be the year of Irish Economic Armageddon?

DublinWriter

Personally, I think so.

Europe has officially declared itself out of recession, Euro-zone interest rates are at an all time low, which only means one thing - interest rates will go up in 2010.

The effect of increasing interest rates would be catastrophic to the Irish economy, we have record levels of personal debt in this country, many people are screwed to the hilt paying mortgage repayments and are in negative equity situations.

Add to that the increasing levels of personal taxation and the spectre of the state paying tens of billions for what might turn out to be totally worthless real-estate in the guise of NAMA.

And that's just the quantifiable economic tangibles, add in intangible factors such as consumer confidence and the prospect for 2010 does indeed look bleak.

Amhran Nua

Predictions for 2010:

• Increased unemployment at the start of the year, masked by the tens of thousands of FAS places specified in the budget, so possibly official unemployment figures will drop. This is caused by a poor shopping season just past and continued high rents.
• Deflation continuing as more and more retailers realise that people just aren't spending.
• Another mini budget in September/October.
• FF/Greens stay in power in the face of ineffectual opposition, although Cowen will be deposed.
• Climbing emigration rates (possibly the target of and reason for youth dole cuts), as young people seek greener pastures, undermining future economic growth.
• Tax receipts for the year drop beneath €30 billion.
• More cuts in taxes on alcohol to compensate the 40% of FF TDs who are publicans for their loss of earnings, which naturally won't be passed on to the consumer.
• Meanwhile in typical FF form, other taxes will be increased while TDs proclaim that pain needs to be shared, pointing to their own cuts in salary.
• Sovereign debt continues to pile up, aided and abetted by the new NAMA vehicle, which will seek to disguise the actual cost of trying to bail out the defunct banks in complex documentation. This will adversely affect the cost of Irish borrowing, compounded by the problems in Greece, leading ultimately to an Irish bond auction failure.
• Few or no union protests from the public sector even after payroll cuts and further benefit curtailments in the third quarter 2010 budget.
• GDP drops 2% to 3%.
• Property prices continue to collapse bringing them to around 40% of peak in 2006.
• Real unemployment ends up at over the half million by the end of the year.

The international picture is a bit trickier, depending on a few interlocking factors. If stimulus programmes actually work, we'll see a growth in exports from MNCs, possibly even attracting a couple of new ones, enabling Ireland to limp on for another couple of years.

If they don't catch and the international economy doesn't run under its own steam by around midsummer, expect panic from the US and large exporters like Germany as their own funds run out or start to visibly impact their own economies. We'll probably lose at least one MNC to legislative taxation changes in the US.

Complicating things further is the awe inspiring property bubble building in China as we speak:

The entire world just got finished watching the kind of havoc a real estate bubble can create as the U.S. economy went down the tubes last year. So you'd think that other countries wouldn't want to repeat the same mistakes. Yet, it appears that China might be doing just that. A dangerous real estate bubble may be forming in the growing economic power. Could its bubble lead to a similar fate?

Bloomberg has an article today detailing some of the madness. Here are a few choice excerpts:

Gloria Gu paid $483,000 for an apartment near Shanghai's financial district so her 3-year-old son could attend one of the city's best kindergartens. Six months later, a similar place in her building sold for $615,000.

Average new apartment prices in Pudong gained 57 percent this year to a record $4,061 per square meter, while overall prices for China's richest city rose 26 percent to a record $2,434, according to Shanghai Uwin, which tracks prices.

New home mortgages in the first nine months of this year totaled about $139.5 billion, quadruple the amount offered a year earlier, the central bank said.

That all sounds vaguely familiar, doesn't it? You could probably change Pudong to Miami or Las Vegas and suddenly be transported back to 2005 in the U.S. But actually, these increases might be even more irrational -- I'm pretty sure that new home mortgages didn't quite quadruple year-over-year in the states.

Now some of this is genuine growth. China is experiencing much more economic expansion than the U.S. But I don't think its nation's growth rate is so high that the kind of real estate appreciation that this article talks about is sustainable.

The government is taking some measures to try to calm things down. It recently reinstated a tax on flipping houses. But according to Bloomberg's sources, the government isn't doing nearly enough:

China's leaders won't make major policy changes because they are preoccupied with economic growth and social stability, overriding concerns that rising property prices are forming a bubble, said Clement Luk, an analyst at Centaline Property Agency Ltd. in Shanghai.


"The government is clearly in a dilemma," Luk said. "It wants to address the surging property prices and concerns on bubble-bursting, yet it dares not take drastic measures for fear of hitting the market too hard."

If that pops in 2010, and given the crash in Chinese exports vis-a-vis debt servicing by loan holders, all bets are off.

jimmycrackcorm

Good thread if it was posted 12 months ago. 2010 can only get better even if only going by the increase in january new car bookings

Count Dooku

Recovery in eurozone will mean not only rising of interest rates, but also that Ireland will not become so attractive place to work. It means that immigration will reverse to emigration. More people will leave, more properties will not find tenants next year. It will mean rents going down and more people, who bought properties for investment in 2006 and 2007 will be not able to mortgages. This year Irish banks had around 30,000 mortgages in arrears, next year this figure will double. It means that banks are dead and taxpayer will have simple choice
Nationalization at cost of about 100 Bn to cover deposits, because banks sold all good assets already
Or
Let banks go bust with all related consequences

ei.sdraob

only if the unions have their way

bamboozle

i cant see things being as bad as 2009, as the eurozone, oz and Canadian economy's we will see more people leave Ireland in search of work elsewhere, this will result in a sizeable drop in unemployment allowance costs for the state, exports will rise as demand for Irish products will increase.

i cant see much more drama occuring during 2010, no doubt its going to be a bad year as will the next 5-10 but no where near as bad as 2009.

gandalf

DublinWriter wrote: »

Europe has officially declared itself out of recession, Euro-zone interest rates are at an all time low, which only means one thing - interest rates will go up in 2010.

This is what is going to define the year. Once those rates start going up then the real pain starts. What we have seen so far is a prelude to the real mortgage difficulties that people are going to face next year.

We need to hope that growth in Europe, especially in Germany and France is slow. If that happens we have a chance, if not we are royally buggered.

thebman

I don't think anything other than slow growth is going to happen?

What are the odds of a massive economic boom in France and Germany?

Which industries do we expect to boom for them?

Valmont

I loved how the economist wrote something along the lines of this "while the euro-zone is out of recession, laggards such as Ireland and..."

I had to laugh.

View

Valmont wrote: »

I loved how the economist wrote something along the lines of this "while the euro-zone is out of recession, laggards such as Ireland and..."

I had to laugh.

Isn't Ireland technically come out of recession after the last quarter results? Or did I just mis-hear that?

population

View wrote: »

Isn't Ireland technically come out of recession after the last quarter results? Or did I just mis-hear that?

It was fudging figures. "Technically" we did. "Actually" things got worse

View

population wrote: »

It was fudging figures. "Technically" we did. "Actually" things got worse

Well, we not a laggard if we are out of recession. The UK, on the other hand, still is in recession as such it does qualify as a laggard. And, all this, despite the Economist claiming that opting out of the Euro would mean the UK's greater monetary flexibility would stand it in good stead...

FergalBoards.ie

We are not "technically" out of recession by Oirish standards, because the govt and its apparatus defines when we're in and out, and they have refused to say that.

Actually this is the case globally, it's never done on a statistical definition, although its ultra-unusual for a govt to buck a statistical definition.

2010 will be the year when there will be a big fight for the TYPE of recovery we have.

We will never have an economy again that puts 30% of effort into construction. We never should have.

2010 will be a year where we either pursue new opportunity and build a more sustainable future through things like for example, tech, energy, security, information or where we all bumble along clinging desperately to some flotsam of the property boom, hoping that we will be rescued and the hell with everyone else. If we go that route, recovery will be very painful.

I don't know which way it will go.

AARRRGH

We are just at the beginning of our recession/depression.

More people will lose their jobs resulting in higher social welfare payments and less tax revenue.
More people will default on their CC and mortgage debt.
NAMA will cause one or both of our main banks to be nationalised.
Massive public debt and bailing out the banks will eat into a large portion the government's coffers.
Incompetent government will continue to spend more than it earns.
Deluded government, public service, and the public in general will ensure we continue making bad decisions.

2010 will be remembered as the years Ireland completely ****ed itself. As Morgan Kelly predicts, Iceland will be doing better than Ireland by 2015.

Time to start learning a foreign language so I can make my escape...

DublinWriter

jimmycrackcorm wrote: »

Good thread if it was posted 12 months ago. 2010 can only get better even if only going by the increase in january new car bookings

That's a bit like using the rate of mortality in the Health Service to judge how effectively it's clearing bed-spaces.

New car sales are backed by personal credit. Very few people buy a new car with cash.

old boy

it is going to get worse due to
welfare payments up
tax recipts down
houses reposessed
savings eaten away
all public services failing to deliver due to lack of funding
people on welfare haveing no spending power
no buisness loans or financial support
infrasture declining and falling into ruin
nothing done to promote job creation
empty houing, warehouseing, factorys, cafes, pubs abandoned half finished white elephants
more cuts on the advice of the ecb
which means more of the above
but hopefully the senior civil servents, politicions and union leaders wages have real time wage and expenses cuts
then maybe something will happen
we are told that
welfare takes up so and so % of the budget
health takes so and so %
public service takes so and so %
i.m.o. nama will take up at least 45% of the next budget
what is left for the country will be zilch.

Amhran Nua

FergalBoards.ie wrote: »

2010 will be a year where we either pursue new opportunity and build a more sustainable future through things like for example, tech, energy, security, information or where we all bumble along clinging desperately to some flotsam of the property boom, hoping that we will be rescued and the hell with everyone else. If we go that route, recovery will be very painful.

I don't know which way it will go.

Given who is in charge of the country, is there any doubt whatsoever about which way it will go.

onq

DublinWriter wrote: »

That's a bit like using the rate of mortality in the Health Service to judge how effectively it's clearing bed-spaces.

New car sales are backed by personal credit. Very few people buy a new car with cash.

I have to disagree - most people still take out car loans to spread the financial load.

In regard to the new car registrations, IIRC MSL Balssbrodge Motors were hopeful of 50 new Merc registrations in January - I dunno if they were A's or G's.

The point is there will always be people who love recessions, because they already have some money - its that much sweeter swanning past the long dole queues in your new jammer.

Ugly people in beautiful cars...

ONQ.

onq

FergalBoards.ie wrote: »

We are not "technically" out of recession by Oirish standards, because the govt and its apparatus defines when we're in and out, and they have refused to say that.

To be fair they have watered down the possible euphoric effect of misleading figures based on Multinational earnings.

Actually this is the case globally, it's never done on a statistical definition, although its ultra-unusual for a govt to buck a statistical definition.

I think its ultra intelligent for them to do this in the light of the foreseeable effect of a false dawn.

2010 will be the year when there will be a big fight for the TYPE of recovery we have.

Totally agree - this is hugely important.

We will never have an economy again that puts 30% of effort into construction. We never should have.

"Never" is not a great word for the human condition - I think we should have managed it better, and we should have developed multi-national companies to build and supply out in China, where it seems they are still building.
Our Irish firms should have a slice of that pie regardless.
If that brings the percentage up to 30% that's fine.
Our difficulty was made worse because we had become dependant on the tax from sales of new houses including capital gains tax on sales and the rest.

2010 will be a year where we either pursue new opportunity and build a more sustainable future through things like for example, tech, energy, security, information
- <break>

I think a lot of people are mouthing buzzwords and the worst one is "sustainability". Like anything else it is wholly relative, yet people with pseudo-green credentials keep mouthing it like an absolutist mantra. Soon we'll all be in MVHR serviced houses and forgetting to change the filters regularly. It'll end in a nation of asthmatics, in tears.

<break> or where we all bumble along clinging desperately to some flotsam of the property boom, hoping that we will be rescued and the hell with everyone else. If we go that route, recovery will be very painful.

World Recession 2008 is painful, and comparisons have been drawn already to the first year of the World Depression of 1929 by articles on VOX q.v. although June 2009 figures are showing some improvement.
This blip could be the start of the recovery for those countries best positioned, or it might be the "lip" of a double-dip recession.

I don't know which way it will go.

At this stage in the proceedings, that's all anyone can say, but this time around we've learnt just how vulnerable Globalization has made us to a failure in one part of one economy.
Interlinked banking practices have "poisoned" our lending institutions, under-regulated/"light touch" oversight has allowed use of new financial instruments to spiral out of the control of their makers, while "just in time" ordering and the segmented means of production in use to day has removed the inertia of the system, meaning any cessation of credit facilities has an instant effect across all sectors, instead of taking a while to engage.

But the real cause for thsi apparent synchronicity across so many world economies both inside and outside the OECD is the interlinked and "real time" nature of banking transactions. The defining factor is the world loss of credit, following on a loss of confidence in the banking sector itself, following on an previously unthinkable failure like Lehman's and would be disasters like Bearn Stearns and AIG, Fanny Mae and Freddy Mac.

We are not the poor relations in all this BTW.

Ireland according the the recent "Love of Money" trilogy of programmes this week, showed the British the way ot do it by guaranteeing deposits. The British showed the Americans what to do, investing directing in the banks as opposed to merely buying toxic assets.

The Chancellor of the Exchequer, in the face of an apparent complete misunderstanding of their untenable position by the heads of RBS in a meeting of Bank Heads is supposed to have said something like "it would be useful in dealing with a crisis like this if the people in the boardrooms new what was going on in their bank."

These boardroom idiots refer to their salaries as compensation.
Its the rest of us that need to be compensated for their incompetence.
What do these monumental dumbos actually DO to earn their ST£1,000,000 bonuses?
There were allegedly 4,000 of these mind-boggling bonus amounts paid out in IIRC 2006 or 2007.
The British partly justified this because they were all taxed at the high rate, so it was effectively the Banks' way of paying the Exchequer some more money!

LOL!

Anyway, 'nuff said.

ONQ.

Amhran Nua

onq wrote: »

"Never" is not a great word for the human condition - I think we should have managed it better, and we should have developed multi-national companies to build and supply out in China, where it seems they are still building.
Our Irish firms should have a slice of that pie regardless.
If that brings the percentage up to 30% that's fine.

And as soon as you can find an Irish builder willing to work for €12 a week and an Irish architect who will work for €150, I'm sure that market will open up promptly. Just to underline that I believe the Polish government recently contracted out major infrastructure works to a Chinese firm over all other competitors.

The construction sector is mostly finished, we have an overbuild to last half a decade and we're still building, and when it was here it was an economic black hole, with current growth being paid for by loans against future earnings, destroying future productive wealth with massive interest for non productive assets, assets which have now lost most of their value (some of which will lose all of their value).

WoollyRedHat

I think we need to focus on infrastruction the next time round. What we should have done when we had all that money, now sordidly missed. Until then we have NAMA to worry about it, a vampire which will suck the life out of our economy unless it is significantly altertered.

Until the realisation of just how bad the government truly ****ed the country up, when the full cost of bank recapitalisation/ possible nationalisation and Nama is revealed, then people might just see Fianna Fail should not be allowed at the helm of Irish politics for at least two terms. Until then it seems they are the saviours of the Irish Economy, the wizards of our finances, yet they are the very same people who have put us into the mess we find ourselves in. People need to realise that Fianna Fail have few ideas, yes they took on the Unions to an extent, but we need more re-adjustments of our finances if we are to have any chance of getting out of this recession, which will require several more budgets in the face of falling tax receipts. Fianna Fail buy time, but as for being able to rescue the economy, don't get your hopes up.

onq

Amhran Nua wrote: »

And as soon as you can find an Irish builder willing to work for €12 a week and an Irish architect who will work for €150, I'm sure that market will open up promptly.

I'm sure muppets working for €150 /week is what we need in the Dáil too.
I hear the same cry from unskilled, tradeless, non-professionals all the time.
These creatures bleat a lot about what people earn, but wouldn't know fiduciary duty or vicarious liability if it bit them on the buttocks.
Actually studying the paper is beyond them, so committing to five years of full-time study or 4 years learning a trade and then six years building up a business would be well outside their "comfort zone" which usually stretches to organizing the next pizza and a six pack - sustainably of course.

Just to underline that I believe the Polish government recently contracted out major infrastructure works to a Chinese firm over all other competitors.

And your point is?
Who did we use for the east link tunnel?
Wasn't it a Japanese company's name that was on the billboards?

The construction sector is mostly finished, we have an overbuild to last half a decade and we're still building, ...

The reason we're still building is because most of these "alleged" uninhabited, completed 200,000 houses are built in half-finished estates accessed off roundabouts, miles from population centres amenities or services. Leitrim. Limerick Junction. Wherever the last utterlyt marginally profitable site was.

...and when it was here it was an economic black hole, with current growth being paid for by loans against future earnings, destroying future productive wealth with massive interest for non productive assets, assets which have now lost most of their value (some of which will lose all of their value).

Rubbish.
Developers rountinely rolled over profits into new developments as opposed to paying tax on them, making them into a long of self-filfuled prophecy.

The ball-less wonders who never do anything in the world are constantly amazed by those who do - that never changes.
You'd be surprised that some businesses are actually doing well in this recession.

As for your anti-corruption stance - you cited China didn't you?

*Bwahahahahahahahaha*

Open your eyes.

ONQ.

onq

WoollyRedHat wrote: »

I think we need to focus on infrastruction the next time round. What we should have done when we had all that money, now sordidly missed. Until then we have NAMA to worry about it, a vampire which will suck the life out of our economy unless it is significantly altertered.

Until the realisation of just how bad the government truly ****ed the country up, when the full cost of bank recapitalisation/ possible nationalisation and Nama is revealed, then people might just see Fianna Fail should not be allowed at the helm of Irish politics for at least two terms. Until then it seems they are the saviours of the Irish Economy, the wizards of our finances, yet they are the very same people who have put us into the mess we find ourselves in. People need to realise that Fianna Fail have few ideas, yes they took on the Unions to an extent, but we need more re-adjustments of our finances if we are to have any chance of getting out of this recession, which will require several more budgets in the face of falling tax receipts. Fianna Fail buy time, but as for being able to rescue the economy, don't get your hopes up.

Another post that belongs in politics.ie by the looks of it.

I'll say this once.

Not ONE political party came up with a credible alternative to the Bank Guarantee Scheme or NAMA - not one.

Yet witless people who contributed nothing meaningful to the debate refuse to get on with it and spend their time bleating about might-have-beens.

FF didn't hold guns to people's heads to make them buy property.
Greed was the motivator - getting on the bandwagon.
Some fell off - more will do so yet.
Develop ways to catch them.
Don't whinge instead.

ONQ.

Amhran Nua

onq wrote: »

I'm sure muppets working for €150 /week is what we need in the Dáil too.
I hear the same cry from unskilled, tradeless, non-professionals all the time.
These creatures bleat a lot about what people earn, but wouldn't know fiduciary duty or vicarious liability if it bit them on the buttocks.
Actually studying the paper is beyond them, so committing to five years of full-time study or 4 years learning a trade and then six years building up a business would be well outside their "comfort zone" which usually stretches to organizing the next pizza and a six pack - sustainably of course.

I'm having a hard time interpreting that, this is what I think you meant; Chinese labourers and professionals earn vastly less than their equivalently qualified Irish counterparts, and China has a vastly larger labour pool, with no need for western assistance to build out its infrastructure.

So if you could help us out here and clarify exactly how we could "get a piece of that", that'd be great.

onq wrote:

And your point is?
Who did we use for the east link tunnel?
Wasn't it a Japanese company's name that was on the billboards?

The point is that China doesn't need an Irish workforce.

onq wrote:

The reason we're still building is because most of these "alleged" uninhabited, completed 200,000 houses are built in half-finished estates accessed off roundabouts, miles population centres amenities or services. Leitrim. Limerick Junction. Wherever the last utterlyt marginally profitable site was.

No, there are plenty of them near to factories and industrial parks in Galway for example - go out to Dough Uisce or one of those estates and you'll find a dearth of half finished apartments, while many of the finished ones are still empty of course. This myth that the overbuild is all in undesireable locations is just that, a myth.

onq wrote:

Rubbish.
Developers rountinely rolled over profits into new developments as opposed to paying tax on them, making them into a long of self-filfuled prophecy.

Right, but who pays for the developments? Mortage holders, thats who. So by following the trail back to where the real wealth is ultimately created, thats where it starts, and in this case is wasted.

onq wrote:

The ball-less wonders who never do anything in the world are constantly amazed by those who do - that never changes.
You'd be surprised that some businesses are actually doing well in this recession.

So we should take the advice of our morbidly obese Taoiseach and "tighten our belts"?

onq wrote:

As for your anti-corruption stance - you cited China didn't you?

*Bwahahahahahahahaha*

Open your eyes.

Wow, this is starting to read like one of those spam emails that come in from time to time, a disconnected garble of sentences that bear just enough resemblance to an actual phrase to get past the filters.

onq wrote: »

Not ONE political party came up with a credible alternative to the Bank Guarantee Scheme or NAMA - not one.

You can say it as often as you like and it still won't be true. Not just political parties but economic commentators offered many alternatives. Still, none are so blind as those who don't wish to see and all that...

onq wrote:

FF didn't hold guns to people's heads to make them buy property.
Greed was the motivator - getting on the bandwagon.
Some fell off - more will do so yet.
Develop ways to catch them.
Don't whinge instead.

If public representatives stop representing the public and instead start to represent private business interests in their statements and legislation, who is to blame?

WoollyRedHat

Fianna Fail as a political party certainly didn't help matters in relation to the property bubble in the sense they encouraged it with the policies they pursued. Our lack of regulation shows that Fianna Fail could have curtailed negible effects of the Property bubble but clearly didn't bother.

As for the bank guarantee, didn't Fine Gael oppose the inclusion of Anglo? Anglo has been proven to be a drain on the states finances, it is another waste of taxpayers money by FF. FG's Nama may not be perfect, but FF Nama is going to proove very costly. The EU in relation to Nama said that face value should be applied when running Nama from what I can remember, not Long term value which is a fundemental flaw in NAMA at present.

mrgaa1

consumer confidence will rise over the year, a levelling out of house prices will occur 2nd quarter but with the public expenditure creating even larger problems another turbulent year ahead.

DublinWriter

onq wrote: »

I have to disagree - most people still take out car loans to spread the financial load.

Very true, but this is still borrowed money and personal debt at the end of the day.

hmmm

Redundancy fear is now considerably reduced, as is the fear of being crippled at the budget. Interest rates will rise but will affect relatively few. The world economy is improving rapidly which should feed back into Irish industry.

House prices will still keep falling which means people will not have "equity" to spend on wasteful investments.

I think 2010 is going to be an improvement for most people on 2009. Next years budget will hurt everyone, but we have reached the lowest point.

FergalBoards.ie

I just wanna clarify one thing.

When I said "sustainable" I meant in the economic sense...that is, I don't believe that 30% construction is sustainable, because it crowds out the rest of the economy leaving resources applied in a way that no other country has successfully done before.

Some green industries may be "sustainable" in the economic sense, because whether or not you believe in green politics, they are typically a reasonably successful sector of most economies.

Not all the industries I mentioned as being sustainable (in the economic sense) were green.

population

hmmm wrote: »

Redundancy fear is now considerably reduced, as is the fear of being crippled at the budget. Interest rates will rise but will affect relatively few. The world economy is improving rapidly which should feed back into Irish industry.

House prices will still keep falling which means people will not have "equity" to spend on wasteful investments.

I think 2010 is going to be an improvement for most people on 2009. Next years budget will hurt everyone, but we have reached the lowest point.

Interest rate increases will not affect "relatively few". There are tens of thousand of families hanging on by a thread and incremental increases will be the tipping point for whether they keep their homes or not. Where is the evidence that the world economy is improving "rapidly" btw? Some countries including the USA have talked up their coming out of recession without actually recording two consecutive quarters of growth which is the indicator. I think we have some bad years ahead, particularly in Ireland.

onq

DublinWriter wrote: »

Very true, but this is still borrowed money and personal debt at the end of the day.

Not necessarily - I should have said "people and companies" - in other words, corporate debt as well as personal.

We are a society that has become used ot living on credit - that I say the above should ocme as no surprise.

ONQ.