End of the good times for the economy?

TWO reports this week produced jolting reminders that the party may well be over for the Irish economy.

The first warned Irish share prices could take up to 18 months to fully recover the value lost since mid-2007 when British funds turned hostile to Irish banks and the construction industry.

Since then they have been selling in and out of the market causing havoc with the valuations of the Irish banking sector whose worth has been slashed 40% on average from its earlier highs.

The bad news for equities was contained in a report form Irish Life Investment Managers.

Markets have a tendency to adjust in time and it should be borne in mind that after the last global share rout following the 2001 dotcom bubble, shares across Europe and the US all made up the lost ground.

The exception was the Nasdaq, the trading outlet for hi-tech stocks, which is still well below half the value it reached prior to the bubble bursting.

One stockbroking sage in Ireland was fond of saying the markets were never wrong, but it may be a view that takes the wisdom of the crowd notion a bit too far.

The writedown of Irish shares has been an overreaction and in this instance the market is wrong.

Even some in the Government have been talking about a campaign being waged out of London by a specific trader to undermine the Irish stock market, with some collusion from Irish brokers.

That seems far fetched, but bear in mind Anglo Irish Bank was subjected to unfounded speculation some months ago that it was in dire need of rescue finance, a claim that proved to be totally unfounded.

To an extent, the Irish economy has been a victim of its own success as the housing boom created a level of hysteria about property investment never seen before in the history of, until 10 years ago, a pretty humble backwater of an economy, still struggling to put together an economic base, that would erase the memory of the long struggle up the economic ladder.

By any measure we have gotten there, provided we discount the awful traffic jams and the pretty dire health service, both stark reminders that to an extent this is an economy still in transition.

In that context, the EU Commission became the second party-pooper this week when it warned Ireland faced tougher times as the property market tanks.

The commission warned “Ireland’s fiscal position faced a noticeable deterioration in 2007-2008, from a sound surplus in 2006.”

This year we face a deficit of 0.9% of gross domestic product, compared with a surplus of 0.5% in 2007.

The commission also said public finances here are at “medium risk” in the long term due to the impact of the ageing population on pension costs.

Essentially, we failed to make provisions for the leaner times when the economy was booming and it will be harder for us to deal with the burdens that a growing population will place on the economy going forward.

Fine Gael MEP Gay Mitchell warned: “By ‘partying on’ when our economy was growing at unsustainable rates, the Government has left the country more vulnerable at a time of downturn in the construction industry and in our main markets — the US and Britain.”

As the level of revenues generated slows in line with the slower pace of economic growth, national finances will be stretched.

With only half the population on private pensions and the health service still in a shambles, the prognosis is not the most optimistic.

And with the crisis in the US property market already causing a global economic slowdown, this economy could hit a few serious speed bumps along the way.