Recovery is in sight as global scene brightens
Improving international factors spark optimism about economy
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THE Irish economy looks set to begin its recovery on the back of the more favourable international economic climate which emerged last week.
In a clear sign that things may be nearing the bottom, several leading businessmen have described the country's current situation as a "golden opportunity", rather than being "problematic".
Within the last week, several international factors which impact directly on the Irish economy have improved for the first time in almost a year, prompting optimism about a turnaround from recession here at home.
While there is no doubt the Irish economy is still "mired in difficulty", with a further 3 per cent cut expected in government spending next month, mounting job losses and deteriorating tax revenues, there appears to be, for the first time in several months, some light at the end of the tunnel.
The sharp drop in the price of oil from $147 a barrel at its peak last month, to this weekend's price of $114, will certainly ease concern heading into autumn and winter, with still further cuts in the price of crude oil expected.
Also last week, the dollar hit a five-month high against the euro and a 20-month peak against sterling. On Friday, the dollar put in its strongest one-day performance for eight years against the euro.
The weakening of the euro against the dollar will be welcomed by frustrated Irish exporters, who have been deeply affected by the strong euro
However, the decline in activity in the eurozone may temper any optimism in the coming months.
Combined with those factors is the prospect of a reduction of interest rates by the European Central Bank (ECB) following clear warnings from its president, Jean Claude Trichet, that the EU economy is to slow dramatically. This will be good news for Ireland, which has been punished by successive interest-rate hikes aimed at tackling the larger EU economies of Germany and France.
It also emerged this weekend that fewer eurozone banks tightened lending conditions in the second quarter of this year, as better market conditions eased the flow of funds to financial institutions. Those aiming to get mortgages will be hoping this means they have a better chance of obtaining finance.
In addition, extended summer sales and a slight dip in food prices gave consumers a respite from the rising cost of living last month, as prices fell 0.3 per cent in July. Consequently, the annual rate of inflation dropped to 4.4 per cent, down from 5 per cent in June. The drop in inflation is set to have some impact on the national pay talks when they re-commence at the end of this month.
However, economists, union leaders and opposition politicians have warned that Irish consumers will suffer further price hikes later this year. Some speculate that the pending increases in electricity and gas will push inflation back up again.
But already, there are initial signs of promise within the Irish business sector, with leading businessmen claiming the current climate represents a golden opportunity for those willing to invest, rather than being a time of doom and gloom.
Businessman Ben Dunne told the Sunday Independent that he views the downturn not as a problem, but as an opportunity. He is not alone. A number of property syndicates formed by businessmen and bankers were actively identifying properties last week, due to the significant fall in house prices, the Sunday Independent has learned.
Such activities are an indication that property prices may be about to bottom out.
But the optimism is not universal. Some are prepared to look to the bright side, but others have said that while the international situation may have improved somewhat, the domestic economy remains mired in difficulty.
Several of the country's leading economists were this weekend hesitant to say the economy's prospects will improve as a result of the change to the international economic climate last week.
Jim Power, chief economist with Friends First, said: "There are no green shoots of recovery in the Irish economy, none at all; it is simply that international factors have become more favourable.
"While the international situation is certainly a welcome change from the last eight months, it doesn't disguise the fact that all domestic indicators are negative at the minute."
Mr Power also said it will be at least sometime next year before Ireland's economy will show any tangible signs of recovery.
Also, the clear majority of Irish business owners have said this weekend that they expect to inflict a pay freeze on their staff, with two out of five expecting to have to lay staff off.
And, according to the latest Sunday Independent Business Owners' Survey, two-thirds of leaders expressed a preference for Charlie McCreevy as minister for finance, over his two successors Mr Cowen and Mr Lenihan.
For the first time, it seems, the Taoiseach is aware of the dangerous economic situation the country faces, as he now plans to make an address to the nation on the state of our economic affairs next month, which is expected to coincide with the annual Fianna Fail think-in, due to take place in Galway.
- DANIEL McCONNELL
