Economist magazine calls Irish recovery
Published 05/02/2010 | 05:00
SOME watershed moments flow by without us noticing. Such a moment occurred last week with a minimum of fanfare.
In 2005 The Economist magazine was among the first to call the impending collapse of Irish property values. In its latest Irish report, the magazine has now discerned "good news on the public finances suggesting Ireland's recession is over".
And, under the heading 'Green Shoots', the magazine has presented its most hopeful evaluation of our economy for some time.
"For the gloomier sort of Irishman, the brutal downturn that followed the country's long boom is proof that nothing good ever endures," it comments. "Thankfully, recessions do not last forever either -- and Ireland's may already have come to an end."
Encouraging news indeed -- not least (considering its source) for our property industry, still reeling from a succession of body blows.
The Economist pointed out as long ago as June 2005 that never had real house prices risen so fast, for so long, in so many countries around the globe. Property markets were frothing from America, the UK and Australia, to France, Spain and China.
Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000, the magazine noted.
It warned that the housing boom was in real danger of bursting worldwide -- with Ireland and Spain the European countries most at risk of a catastrophic economic collapse.
The Economist estimated that the total value of residential property in developed economies rose by more than $30 trillion over the previous five years, to over $70 trillion -- an increase equivalent to 100pc of those countries' combined GDPs.
"The surge not only dwarfs any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s or America's stockmarket bubble in the late 1920s," the magazine declared, adding that the rise "looks like the biggest bubble in history".
This admonition went down like the proverbial lead balloon in property circles.
Irish property professionals, blind to the fact that prices in this country were dangerously overvalued and oblivious to the chasm yawning beneath their feet, went right on riding headlong for the biggest fall ever.
The "soft landing" contingent led the charge, with former Taoiseach Bertie Ahern famously declaring that he "did not know how people engaged in moaning about the economy did not commit suicide".
The well-nigh universal practice of shooting the messenger -- aided and abetted by bankers, politicians and developers alike -- continued until the latter day Light Brigade rode straight into the Valley of Death.
Warnings from so-called "merchants of gloom" on the dangers of Ireland's spiralling property values -- like The Economist and no less an eminence than the International Monetary Fund -- were given short shrift by those who did not want to change their tune.
The intervening years have, of course, set the record straight and property speculators of every hue have paid a heavy price for sticking their heads in the sand. This latest positive bulletin is accordingly all the more important.
The magazine points out figures released before Christmas showed Irish GDP rose by 0.3pc in the third quarter of 2009, broadly in line with the rest of the euro area. Unemployment is still rising, but at a slower pace, jumping from less than 5pc of the workforce at the end of 2007 to 12pc by June 2009 and only barely edging up since.
Written before the latest Exchequer returns, it says the most encouraging signs of recovery are to be seen in the public finances.
It points out that most economists are still cautious and warns a single month of better revenues is scarcely a trend. The magazine adds that obstacles to a brisk recovery are still formidable: "The full force of past measures to tackle Ireland's huge budget deficit will be felt this year," it predicts.
But it believes the tide could be turning at last -- wages are falling, but so too are prices. Sluggish growth in the rest of the euro area can only help exporters to sell more in America and Britain, our two biggest markets. And the subdued nature of the current turnaround is deterring the European Central Bank from raising interest rates from their current low levels (music to the ears of hard-pressed homebuyers).
"A rate rise would hit Ireland hard, because of its high household debts and still fragile banking system," the magazine concludes.
"These weaknesses may play to pessimists' fears, but at least for now the optimists have something to cling to."