Monday, February 04, 2008

Optimist on Irish Economy; Pessimist on Eurozone Economy

The Sunday Independent reported on Sunday that Ireland's fear that it's headed for an economic downturn could be the decisive factor in making it happen, according to who it termed "a leading economist."

Austin Hughes, Chief Economist at IIB Bank, was reported to have 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," the report said

"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 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.

Austin Hughes has been playing a Dr Jekyll and Mr Hyde on this issue.

Hughes forecast that the European Central Bank would cut its benchmark rate twice in the first half of 2008. He expected that a rapid deterioration of the Eurozone economy would force the ECB to reverse gears.

A fellow economist had termed his position as "wishful thinking."

The Eurozone economy is slowing but very few economists are expecting a slide that would prompt early interest rate cuts.

There may well be interest rate cuts later in 2008 but they will be prompted by bad gloomy news in both the US and Europe.

A recession in Europe could boost the Irish housing market if the ECB was to emulate the US Federal Reserve but how many European jobs should be sacrificed?