Sunday 20 January 2019

Are bad times over, or is the sequel here?

To understand the future, it helps to check out the past, writes Gene Kerrigan

Dermot O'Leary, chief economist of Goodbody Stockbrokers
Dermot O'Leary, chief economist of Goodbody Stockbrokers
Gene Kerrigan

Gene Kerrigan

When it comes to grand announcements on the state of the nation, and predictions about economic recovery, some of us are inclined towards scepticism.

Last week, the economists from Goodbody had great news about the economy. Goodbody advises people on where to invest their money.

They're experts, but they don't necessarily measure economic developments by the same criteria the rest of us use.

Last week, Goodbody's report was explained to the media by Dermot O'Leary, the company's chief economist. The report, titled "The Lost Decade", covers the period from 2008, after the economy was devastated by the reckless gambling of banks and bondholders.

The Irish Times told us Ireland has "waved goodbye to the lost decade". Goodbody concluded the bad days have passed, and all we have to do now - as Enda Kenny used to say - is keep the recovery going.

Leaving aside Brexit dangers, our future's so bright we're gonna have to wear shades.

When experts tell us about the future, though, some of us like to check what those same people said about the past.

So, I had a look. And Goodbody was indeed hard at work in 2006 and 2007, figuring out what would happen to the economy in 2008 and the years that followed.

Back then, some people were worried about the level of borrowing, the state of the property market - they feared that the whole Celtic Tiger thing rested on dodgy foundations.

In June 2006, Mr O'Leary concluded: "We do not anticipate a sharp adjustment." The Irish Times reckoned that his "scenario" sounded like a "perfect soft landing".

Four months later, in October 2006, in a 94-page report on Irish construction, Goodbody Stockbrokers told us: "Soft landing is the core scenario." Construction "should experience a soft landing over the next few years".

House-building would slump, but "non-residential activity will remain well underpinned by increasing levels of public spending and continued growth in private construction".

Two months after that, with a December 2006 budget on the way, Goodbody quite sensibly advised the government not to mess with stamp duty. It also anticipated what Mr O'Leary called "the predicted and indeed welcome 'soft landing' in the residential property sector".

After another two months, in February 2007, Mr O'Leary told Finance magazine: "We are still in the soft landing camp even though the risks have undoubtedly increased over the past 12 months."

Now, this is not to single out one economist, or one company - that was the message from almost all the experts. For example, in April 2008, top international banker Peter Sutherland assured us that Ireland could "confidently look forward to continuing growth above the EU average for the next five years and beyond".

So, Goodbody might be right. More jobs, maybe better jobs, some stability - all of that would be nice. We could do with a break after seeing 15pc wage cuts and public services slashed so ruthlessly that not even the hospices escaped. Bring on the blue skies.

But, these people have form.

More important: it's not true that the past 10 years was a tunnel we all passed through together, on the way to a world of sunlight. And we didn't all experience the recession the same way.

In November 2010, the IMF and the ECB took over running Ireland. We were in rag order. And just about that time, in a shattered country, with years of devastation ahead, Brown Thomas opened its "Marvel Room", selling extra-expensive luxury gifts.

You could buy a five grand handbag. Or for €1,110 you could get a biro in 18-carat gold and alligator skin. Among the cheaper items were a candle at €210, and a lighter to light it, at €180. Together, those two items cost as much as two people on the dole got to live on for a week.

The counters of the Marvel Room, and many others elsewhere, were busy that Christmas, and for other Christmases to come.

There are two Irelands; one that hardly noticed the recession, the other that still lives amid the wreckage of 2008.

A Financial Times analysis last week suggested the sequel to the 2008 collapse is already here - that the big international banks that played reckless games a dozen years ago have been at it again.

Globally, corporate and household debt is at dangerous levels. Across Europe and in the USA, there was no real reform - just central banks shovelling countless billions into the system, in search of stability.

Several weeks ago, the Bank for International Settlements warned that banks in China, Canada, Thailand and Hong Kong are under stress - and not in a small way.

Here, tens of billions of public money was handed to bankers, and our leaders went behind closed doors and assured EU leaders we'd swallow whatever they and the bondholders wanted us to. The bills for all that will keep coming for decades.

Two Irelands.

One that took a hammering. And an Ireland of uninterrupted luxury and social froth, in which the decade was never lost, it was lived large.

Sunday Independent

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