We should not get too grim about economy
By that he meant far too gloomy.
The comment came from Chris Johns whose back was against the wall over Bank of Ireland Asset Management’s poor fund performance.
His choice of the word lurid came during an RTÉ radio interview and could be put down to his unease at having to defend the bank’s poor investment performance.
But he may just have a point that some analysis has become that bit too pessimistic.
Doubtless, there are issues starting to emerge with housing the key worry.
We should not be unnerved however by that, to borrow a phrase from IDA Ireland’s chairman John Dunne, who last week warned we were getting too grim about the prospects for foreign direct investment.
In times of economic uncertainty those of an optimistic bent have a good line of their own they like to trot out.
They take the line that if we talk negative all the time we risk talking ourselves into a slump.
However, confidence is a delicate matter as the gyrations in the Irish stock market, which has fallen heavily this year, bears witness.
Uncertainty has been caused by the setback in housing, despite broad acceptance, the market had to slow or blow up.
And that’s what’s happening — the housing market is slowing.
However, that has implications for borrowing and financial stocks in particular have been the main victims of the share sell so far this year.
But it’s good the housing market is slowing even if it has negative implications for investors in financial and other stocks.
The alternative was a rout in the sector with very serious consequences for the economy.
However, the blowout in Irish shares also reflects continuing fears for global interest rates.
They look set to rise into next year at this stage with most analysts here convinced we face a 4.5% base rate by early 2008.
Inflation, long regarded as the fundamental threat to stable economic growth, is on the rise.
While at or below 2% in the eurozone for some time the danger is the good spate of economic growth in the core European economies will push the cost of living index out to 2.5% the months ahead.
Such a scenario is anathema to the ECB which will raise rates to the level it regards as necessary in order to keep the inflation threat under control.
To keep inflation at or below 2% is its mandate and the bank’s directors in Frankfurt allow nothing to get in its way, irrespective of what the temporary impact on economies might be.
That’s no secret of course and most analysts, on that basis, are girding themselves for another 0.25% hike in September/October to be followed by one more by early next year.
It was interesting, however that on Thursday, ECB president Jean-Claude Trichet hinted when the bank held rates at 4%, the next hike in rates might not happen until October.
Some analysts translated that suggestion of an October hike into a war between the hawks and the bank’s doves, who believe rates have already gone high enough to keep inflation restrained. If there was unanimity why the hesitation about raising rates in September?, they ask.
That seems to be a weak attempt at trying to give the markets false hope the ECB is preparing to hold its fire on interest rates.
The difficulty for the bank is Europe is growing solidly, stronger than the US, and inflation is suffering as a consequence.
It is difficult to see rates holding at current levels and most analysts now say a rise to 4.5% by early 2008 looks close to inevitable.
