Boom or bust? - Mixed messages on economy

THE burning question as to whether Ireland’s buoyant economy can continue to soar, or whether it is flying perilously on ‘one wing’ perplexes the average person and divides economists.

As gurus gazed into the future through multi-coloured crystal balls yesterday, the old adage that doctors differ and patients die sprang to mind.

On one side of the argument, NCB, one of the country’s biggest stockbrokers, foresees the unrelenting boom continuing for the next 15 years.

In a report whose title, 2020 Vision, has apt connotations of full marks, economic pundits Dermot O’Brien and Eunan King forecast sustained economic growth of close to 6% per annum - powered by a tide of migrant workers.

NCB’s argument, essentially, is that Ireland’s youthful demographic profile is unstoppably fuelling its remarkable economic performance.

The authors predict that the population will grow 30%, to over 5.3 million, by 2020, and that it will reach 6m by 2050.

Fifteen years from now, they say, immigrants could account for a fifth of the population.

A less rosy picture, however, was yesterday drawn by economic guru Jim Power, of Friends First, who believes - and he is not alone in this view- that we are overly dependent on construction.

Despite persistent warnings that the property bubble will some day burst, new houses are going up at a rate and with price tags that are unprecedented.

Young people striving to gain a foothold on the property ladder, meanwhile, are inevitably being saddled with huge mortgages.

Financial Regulator Mary O’Dea yesterday warned homeowners planning to remortgage their homes of the costs and hidden dangers of such a move. Although she was focusing mainly on people trying to pay off short term debts, her caution comes as many parents struggle to help sons and daughters to buy their own homes.

Launching a new guide on mortgages, Ms O’Dea advised consumers to pay off any new loan over the original term of the mortgage because it would to otherwise take longer and cost more.

With pundits painting radically different pictures of the economic outlook, the question is: Who is right?

Basically, the thesis put forward by NCB is that Ireland’s surging population is underpinning demand for houses, goods and services and will continue to do so for a long time, keeping things on the upswing.

Arguing that nothing on the horizon can derail the economy, NCB says Ireland has unstoppable momentum that will bring it growing all the way to 2020 - unless that surge forward is undermined by, for instance, a major oil price shock.

It’s not all good news, however, since the current crop of baby boomers will inevitably age. By 2050, over-65s - 29% of the population - will be increasingly dependent on a smaller work force. The implications for pensions are bleak. Ultimately, even according to NCB’s optimistic outlook, the pace of economic growth will begin to run out of steam.

The fact that the construction industry now accounts for 12% of all economic activity, meanwhile, lends credence to the Friends First warning that the country is over reliant on that sector.

That the bubble will eventually burst looks like a self fulfilling prophesy.

An enormous infrastructure deficit, however, remains to be filled and the service element of the economy is expanding exponentially.

So, even if house building slows, and despite losses in the manufacturing sector, there is good reason to believe that our economy is on the up and up.