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Saturday, March 15, 2008

Irish Economy: Economist Austin Hughes aching for Eurozone Recession; Clueless Politicians on Auto-Pilot

Brian Fallon, Director, of property website Daft.ie with Austin Hughes, Chief Economist, IIB Bank


"Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide because frankly the only thing that motivates me is being able to actively change something," so said Taoiseach (Prime Minister) Bertie Ahern, to an Irish trade union conference in July 2007.

If you and your group of 34 other second-rate ministers believed that you invented the Celtic Tiger and had found the philosopher's stone to transmute your creation into a permanent prosperity, then it's easy to understand why you look with disdain on critics, who charge that a US dominated economy, powered domestically by a construction boom, is built on a foundation of quicksand.

Ahern is a pastmaster at speaking through both sides of his mouth and at a press conference in Brussels, on Friday, March 14, 2008, he said:

"Economic forecasting, as we all know, is an uncertain exercise and, for a small, globally-integrated economy such as us, the uncertainties that are out there at the moment are magnified. There's no doubt about that and this is apparent from a whole range of forecasts currently available.

"But they are all very different. I'm not getting into the business of which one is right. NCB (stockbrokers) this week published a forecast of 3.5 per cent of GDP growth for the year so here you see, in the one week, [ forecasts] that are going from 1.8% to 3.5%."

But for the NCB Stockbrokers chop imprinted on the first report, it would be dismissed as a joke.

The second report is from the Economic and Social Research Institute (ESRI), an organisation that almost fifty years ago, was the inspiration of TK Whitaker, eminent civil servant and artchitect of the modern Irish economy. It is independent and publicly funded.


The purpose of the ESRI was to have credible analysis done outside the Department of Finance - to be free of political and commercial influence.

Irish Economy: Housing market not the engine of growth; Exports contribute minimal impact to growth because of high import level - Demographics are the key

Irish Economy: ESRI forecasts growth to plunge to 1.6% in 2008 - lowest in 20 years; Moderate recovery in 2009 but Exchequer deficit will rise to €7.5 billion

Last year, besides Bertie Ahern, there were several others including IIB Bank economist Austin Hughes who excorciated "negative commentators" who were "talking down the economy."

Now that reality has struck home, the tune has changed to a welcome for the arrival of a "sustainable" housing market.

A year ago Dublin property agent Ken MacDonald wrote: Why do we allow scaremongers and doomsayers with unfounded pessimism and unbridled negativity dictate our thinking and blunt consumer confidence? The Irish economy is the envy of the world. Job creation is phenomenal with more than 7,000 new jobs being created each month - despite the gloomy attention given to periodic job losses in some sectors.Unemployment stands at 4.1%, the lowest in Europe; there are 750,000 more people in the workplace than a decade ago. We have revitalised cities and towns, a conveyor belt of entrepreneurial business people operating successfully on a world stage, a rich cultural and artistic heritage, a vibrant talented young population, rising by almost 100,000 per year, confident in their own and their country's destiny. We should be celebrating our success on a daily basis. In any event, the Irish love affair with property will continue undaunted despite the knockers.

A conveyor belt of entrepreneurial business people operating successfully on a world stage? - Buying overseas commercial property maybe but in other sectors, not much to brag about.

Irish investors were the second biggest net investors in commercial property across Europe in 2007

Last month, the Sunday Independent wrote: Ireland's fear that it's headed for an economic downturn could be the decisive factor in making it happen, according to a leading economist.

Austin Hughes, chief economist at IIB Bank, has warned that a self-fulfilling "wall of gloom" is contributing to the recent rise in unemployment.

The economic expert was speaking following the release of latest live register figures, which revealed a 7,800 increase in the jobless total in the past month.

"There is more or less a wall of gloom for the outlook of the economy at the moment and, in those circumstances, the likelihood is that firms in the broader economy where conditions are still okay . . . are probably being more cautious about their hiring plans and particularly in terms of casual and short term labour, they're probably easing back," explained Mr Hughes.

"Firms are being more cautious, consumers are gloomy. "Most media commentary is fairly downbeat so it is understandable if everyone is erring on the side of not hiring and not spending," he added.

It's interesting that the super-optimist on the Irish economy appears to be aching for a Eurozone recession, so that European Central Bank interest rate cuts would jump-start the Irish housing market. Damn the consequences for those who would lose their jobs across Europe.

In February, Hughes speculated that a dramatic deterioration in the Eurozone economy could trigger ECB rate cuts by April if not earlier. Everything appears to be seen through the prism of the Irish mortgage market. The business of his bank is overwhelmingly mortgage lending.

Not all financial service economists are like artists who paint what their patrons like but in recent times, Hughes is acting more as a mortgage marketing man than economist. It hardly matters as he will be sure to get continuing free media exposure from busy journalists in need of a quote from a "leading" or "top" economist.

As for the broadcast media, usually the interviewer has little if any grasp of economics and beyond waffle about the short-term i.e the coming few months, there is seldom a challenging question to deal with. The chief requirement of a good forecaster is a brass neck. Who cares what your past batting average may be or that you cannot offer independent/uncompromised analysis?

Jill Kerby wrote in the Sunday Times on Feb 3rd:

What is it they say about economists? That they make weather forecasters look good?

The mortgage banks just cannot resist sending out their economists at every opportunity , and ideally when a microphone or television camera is in the vicinity, to "reassure" the public that all will be well in the housing market.

Last week it was IIB Bank's turn to tell the nation that once average house price fall another 5%, to make a grand total of 16% since the start of last year, the bottom will have been reached, the "soft landing" achieved.

Would anyone listen let alone believe such a prediction if it was delivered by the bank's mortgage boss or the PR guy? Of course not.

They'd dismiss it as marketing propaganda to drive a few more first time buyers into the jaws of the mortgage monster out there with a sign around its neck that reads "negative equity" if they also happen to be seeking a 100% no-money-down, interest only loan.

Three Irish bank economists on ECB rate outlook: From 3 cuts beginning in June to unchanged benchmark of 4% in December 2008

Comment: Irish Government declares free lunch has not been invented but freeloading continues for ministers