‘Getting on with it’ sounds like sound advice
Gone are the glory days as the economy finally slows in tandem with weaker housing demand and the steady rise in ECB interest rates.
Poorer global growth has also hurt the growth outlook as the US finally buckles under the weight of the housing backlash, fuelled by the previous bout of low borrowing when US rates were cut to 1% by the previous president of the US Federal Reserve Alan Greenspan.
From our perspective, signs of lower growth are irrefutable.
This year the exchequer will take in €600 million less in stamp duty as the housing market slows quite sharply. However, the operative word here is slowed, not collapsed.
Next year the tax take will fail to make the previously projected figure by €2.2m with stamp duty and lower growth generally resulting in a lower flow of revenue to the exchequer’s coffers.
This is not a major surprise. A slowdown was required in housing and it looks as if the number of houses built next year could be as low as 50,000.
The Department of Finance in its Pre-Budget Outlook statement is saying 60,000 houses annually will be built for the foreseeable future, significantly more optimistic than the 45,000 put into the market by the Construction Industry Federation in its recent review.
Even if the figure falls to 45,000, that might be no bad thing. The last thing the economy wants is a glut of housing nobody wants.
And with prices falling probably by about 20% at present and not the 2% being claimed by the latest ESRI/PermanentTSB price review the housing sector is fragile relative to where it has been. Some outside analysts think the housing market is still bubble prone and this economy needs to tread warily.
Without doubt we are heading into unchartered territory. We have chalked up a lot of positive firsts in the past decade but the party had to end. That does not mean the economic growth story of this country has ended.
We have competitive issues that need tackling and growth in the past five or six years has been driven by internal demand rather than exports where our performance has fallen significantly. To survive into the future we will have to sell goods and services internationally in order to keep the economy ticking over.
But we have lots of good ticks on our economic score card as well. Our national debt is less than €40bn and the National Pension Reserve Fund of over €21bn cuts that figure in half.
It is also marginal when set against a gross national output or GDP of over €200bn for this year and we have emerged as one of the best managed economies in the whole of the EU, with the second lowest debt/GDP ratio among the 27 member states.
ISME, one of the leading voices of Irish-owned firms, many of them small and in family hands, noted at its annual conference held yesterday that poor infrastructure is costing business €2.5bn a year in lost profits. That is more than what the state will lose next year in its lower tax returns and it is an issue that ought to be given the highest priority.
JJ Killian, chairman of ISME, warned delegates not to buy into the doom and gloom that has started to surface around the place about the economy.
“We can talk ourselves into a hole if we want to and we are in danger in this case of talking ourselves into a self-fulfilling prophecy,” he said.
It may well be the case that the going will get tougher but Mr Killian was upbeat and in the best tradition of modern Irish business he urged those present to just to “get on with it”. It sounds like good advice.
