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Dan White: Fasten your belts for another bumpy ride in 2010

The bad news is more cuts, falling house prices and rising interest rates but the good news will see a cheaper euro kickstart the economy at last

1 Public sector numbers will be cut

HAVING already imposed an average public sector pension levy of 7pc and wage cuts of between 5pc and 15pc the scope for further cuts in public sector pay is limited. However, with Brian Lenihan looking for a further €3bn of spending cuts or extra tax revenue in the next Budget, the pressure will come on public sector numbers instead. Having already dropped by 9,500 in the third quarter of 2009 expect further steep cuts in 2010.

2 Welfare rates will be cut even further

THE Government cut most social welfare payments, except pensions, by 4pc in the Budget. However, even after the Budget cuts, the basic weekly welfare payment for a single person in this country of €196 is almost treble the £64 paid in the North.

3 The minimum wage will be cut

AFTER the Budget cuts in public sector pay and social welfare rates, the minimum wage is the last surviving sacred cow from the Celtic Tiger era.

4 Interest rates will start to rise

INTEREST rates have been on the floor ever since the emergency rate cuts that followed the collapse of US investment bank Lehman Brothers in September 2008 with the official ECB rate at all-time low of just 1pc.

Not for much longer. Eurozone rates will start rising from the autumn at the latest, further increasing the pressure on hard-pressed homeowners.

5 House prices will continue to fall

WITH stocks of unsold houses at record levels and interest rates set to rise, house prices will remain under pressure. House prices fell by 12.7pc in the first ten months of 2009.

Expect further falls in 2010.

6 A Spanish banking crisis will trigger the moment of truth for the eurozone

FORGET about Greece. Like ourselves, the Greeks are no more than a pimple on the elephant’s hide. Spain is, however, along with Germany, France and Italy, one of the eurozone’s “big four”. The higher-than-expected third quarter loan losses at both of Spain’s major banks, Santander and BBVA, indicate that their loan loss reserves are being exhausted and that the country’s property bust is now making itself felt.

This could trigger a Spanish banking crisis in the New Year. This would be good news for Ireland if it forced the ECB to print more money, allowing us to gradually inflate our way out of our debt prison.

7 The euro will fall against sterling and the dollar

THE markets are already betting that the ECB will be forced to adopt a more inflationary monetary policy to save Spain with the euro slipping against both sterling and the dollar in recent weeks.

This trend will continue in the New Year with the single currency losing even more of its value against the other major international currencies. Good news for hard-pressed Irish exporters but bad news for anyone planning a shopping trip to Newry or New York.

8 There will be just three Irishowned banks left by the end of 2010

LAST month, members of the EBS and Irish Nationwide building societies voted to allow the state to take effective ownership of the two institutions while shareholders of Irish Life & Permanent voted in favour of a corporate restructuring which will facilitate the demerger of its Permanent TSB mortgage banking subsidiary. The result is likely to be a threeway merger creating a state-controlled banking “third force” capable of competing with AIB and Bank of Ireland.

9 Either or both AIB and Bank of Ireland will be in majority State ownership by the end of 2010

AS loan losses continue to mount, AIB will have written of €7.1bn in the two years to the end of December 2009 while Bank of Ireland expects to write off €6.9bn in the three years to March 2011, the Government will have to inject even more capital into the two large banks. With NAMA demanding much bigger discounts on the loans it buys from the banks than most analysts had expected, this would trigger even further losses. making it virtually inevitable that AIB will fall into majority State ownership this year. With its cleaner loan book, Bank of Ireland might, just might, stay out of majority State ownership but it will be a damned close-run thing.

10 The economy will begin to recover in 2010

A CHEAPER euro and a stronger global economy will help lift the Irish economy in the second half of 2010.

However, unemployment is likely to stay high for the foreseeable future, so it won’t feel much like a recovery any time soon.