Taking the temperature of the boom

Over 12 years ago, the Irish economy was booming and only a few were warning about the bust that was on its way. Kyran Fitzgerald scans the headlines of the day to assess the nation’s mood.

In January 2006, the long Irish economic boom was moving into its last phase and before long it would be on its last legs.

How innocent we were, like Europeans enjoying the warm early Summer in 1914. Soon, all would be changed utterly.

So what was the national mood like at the time? Pretty good — but with plenty of the usual grumbles and criticisms.

On the business front, rising energy prices and borrowing rates were attracting much in the way of comment, but the citizens were getting ready to spend the largesse generated by former Finance Minister Charlie McCreevy’s special savings scheme.

Mr McCreevy had by then long departed for a job in Brussels.

The Economic and Social Research Institute (ESRI) had begun to warn of the need to rein in the property bubble.

But consumer rights rather than institutional solvency were to the forefront when it came to commentary on the banking sector.

In early January in 2006, the national newspaper headlines talked of the country being “flooded by fakes — from counterfeit Prada bags to phoney Gucci watches, fake tracksuits, cars and engine parts”.

Other stories referred to “the first steps” being taken towards the introduction of national cervical screening.

There was work to be done: Many people were being diagnosed far too late — at a later stage than women in

Britain.

Tourism was booming. The number of Irish people taking holidays at home had risen to more than 3 million in 2005, up 500,000 in six years.

However, rural locations were losing out to urban ones and the West of Ireland was slipping behind as people opted for shorter breaks, no longer willing to be away from their desks for too long.

Eddie Hobbs was one of the runaway media stars of the time with his RTÉ show Rip Off Republic, which brought a sense of entertainment to consumer financial reporting.

He reported on how Irish Permanent had managed “to lure” 40,000 customers with a slick advertising campaign

involving an offer of free banking.

Rabobank, meanwhile, was paying out 3% on deposits.

Happy days, indeed.

The financiers were in full sales pitch mode, but the authorities clearly believed that they had a grip on the situation.

A new statutory consumer protection code had been introduced some months earlier. It was described by the Central Bank as “the single biggest pillar of consumer protection”.

Banks faced fines of up to €5m for serious breaches.

The funds were certainly pouring into households. There was a jump in second-hand house prices.

According to a report by estate agent Sherry FitzGerald, 486 second-hand homes sold for more than €1m in the greater Dublin area, up from 320 selling for above €1m in 2004, and 185 in 2003.

Its economist Marian Finnegan, was confident that “the strength of the Irish economy and migration would enhance demand for property during 2006”.

In early January in 2006, a national newspaper also reported that the Government was “embroiled in controversy” after raking €1.7bn more in tax than forecast.

This meant that seven times over eight years, the Government had underestimated the performance of the economy with the property boom and consumer spending continuing to run ahead of predictions.

Ministers were also being criticised for failure to spend €700m available for health and infrastructure projects.

At the time, the State planned to borrow over €3bn at the very top of a boom time economic cycle. It ended up borrowing €500m as the Department of Finance gently applied the brakes.

People were out enjoying themselves. UK bookmaker William Hill planned a significant increase in their Irish operations.

With this in mind, it had replaced IBM as the sponsors of the Galway Plate.

There were predictions that “women would soon match men in seeking treatment for alcoholism”.

A report suggested that women were “more likely to binge drink because their brains react differently to those of men when they take alcohol”.

On a happier note, broadcaster Craig Doyle was voted “Ireland’s sexiest man” fending off actor Jonathan Rhys Meyers, soccer player Matt Holland and actor Cillian Murphy.

Mr Doyle picked up his gong at a bash at the Cocoon Bar, a venue owned by Formula 1 star Eddie Irvine.

The IDA was buoyant. In its annual statement, it reported the biggest increase in employment in client firms in five years, with nearly 13,000 jobs being created by foreign companies.

One investment being pondered was that by US pharma giant Amgen, in Co Cork.

Down at the ESRI, the mood was a touch soberer. It called for public pay restraint, arguing that “pay rises should be kept to a minimum as the economy has continued to lose share of world trade”.

Not willing to completely spoil the party, it did forecast economic growth of 4.8% in 2006 — somewhat shy of Bank of Ireland’s bullish 6% prediction.

Shortly before, the ESRI had called for the scrapping of mortgage tax relief. It cited the fact that construction now accounted for 12% of GDP.

Minister of Finance Brian Cowen said that any such move would “certainly not be happening”.

In its medium-term review, the ESRI also proposed a property tax and the ending of property tax reliefs.

In retrospect, its call was belated.

Regardless, such calls fell on deaf political ears at the time.

Provincial towns were booming as tax backed developments opened their doors.

Sligo’s new €30m town centre attracted a bevy of overseas names such as Next, TK Maxx, River Island, nMonsoon, Oasis, Benetton, and Sisley.

Many lamented the spread through Ireland of the clone town — a description coined by Ian Lumley, An Taisce’s heritage officer.

Almost all of the stockbrokers were bullish. Some brokers at the time recommended investments in Bank of Ireland, Grafton Group and Vodafone.

For some stock tippers, Bank of Ireland had underperformed its peers due to outside factors and suggested that the bank could grow earnings by 10 a year over the coming two years.

A few sounded a note of warning, saying that the high gains of the past few years cannot be maintained much longer, and warned of leaner times ahead.

“The high gains of the past few years cannot be maintained much longer so be prepared for leaner times ahead,” said one asset manager.

He said that at markets had shrugged off a cumulative hike by the US Federal Reserve from 1% to 4.25% and warned of that the “insouciance may not last”.

“The reality is that all market forecasts are inherently unreliable,” the asset manager wrote.