Economic outlook a matter of perspective

TWO snap shots of the economy this week should cheer up anyone feeling gloomy about where the economy is headed.

While government taxes look likely to fall short by well over a billion euro this year it does not mean the end of the road for the economy.

Earlier this week IIB Bank reported 50% of businesses are forecasting better times.

Even in construction, where activity was reported down by close to 40%, one in three said business grew and more jobs were created.

Overall, competitiveness was the key issue raised as the main issue for firms going forward, not higher interest rates or a slowing economy.

Backing that quite optimistic take on the economy is a new economic commentary from National Irish Bank which says growth this year will be 6%, followed by a lesser 4.7% in 2008.

Those figures are up there with the more optimistic forecasts from Bank of Ireland and NCB, and well ahead of the more gloomy prognosis from the ESRI last week which has slashed growth to 2.7% against 4.7% for 2007.

Much of Davy Stockbrokers’ pessimism is influenced by the uncertain state of the housing market, with Davy forecasting 35,000 job losses over the next 18 months as demand for houses looks set to fall dramatically, according to more gloomy analysis.

Housing completions could be as low as 45,000 next year as the Construction Industry Federation warned last week.

Considering fears over the sector’s future as well as the continuing uncertainty about interest rates, it is not unreasonable to speculate that homes built could fall from 77,000 in 2007 to such a low level next year.

NIB’s new chief economist, Ronnie O’Toole, noted in his report that housing is not the only story of the economy.

For that reason he said growth in Ireland would remain strong, delivering an increase in GDP output of 6% in 2007, and 4.7% in 2008.

Good growth in exports as a result of the strong inward investment in 2006 helped by growing consumer expenditure will keep the economy going, the NIB economist argued.

At the consumer end, gains in household wealth in recent years coupled with a modest easing of prices in the housing sector will help bring buyers back and keep demand from falling dramatically.

Mr O’Toole, who has a background in Forfás, the State body with overall responsibility for the IDA and Enterprise Ireland, which embraces industrial strategy, is bringing a new perspective to the table.

It was interesting that he took time out to look at the regions.

Despite all the reports, nobody to date highlighted the dependence of men in rural Ireland on the construction sector.

Many of them have farming backgrounds and with the flight from the land a daily reality any slowdown in housing will have a big impact on rural Ireland where industrial development has been weak by comparison with the big urban centres.

Dublin now accounts for 36% of all multinational jobs, up from 30% a decade ago while the border regions have been hard hit in that respect.

Mr O’Toole records that over the same period the border areas have seen their share of multinational jobs almost halved.

While the NIB view may look to be different for the sake of being different, the two points about the reliance of rural males on building and the poor performance of the regions in terms of foreign direct investment are well made.

The NIB economic review, the first ever from the bank, even if it does look to be a bit too optimistic, is to be welcomed for offering a different perspective.