AKC News // Perfect storm hitting Irish economy

The phrase perfect storm originates from the 1997 book "The Perfect Storm" which refers to the simultaneous occurrence of weather events which, taken individually, would be far less powerful than the storm resulting of their chance combination. Such occurrences are rare by their very nature, so that even a slight change in any one event contributing to the perfect storm would lessen its overall impact.

Now Ireland's most optimistic economist has used the phrase to describe the current state of the Irish Economy.

He says: ¯Everything that could go wrong for the Irish economy has gone wrong. In his latest quarterly economic outlook today, Bank of Ireland's chief economist Dan McLaughlin says the credit crunch, high oil prices, the fall in the Irish stock market, slow economic activity, higher interest rates and weakness in the dollar and sterling have all taken their toll.

He says this has led to a sharp fall in business and consumer confidence. He said the fall in house completions was a main factor in causing the poor economic performance, but this was not unexpected. It was the performance of some of the other components of growth that surprised commentators, he adds.

The sudden slowing in service exports is an unexpected development in the first quarter, given the consistent double digit growth seen in recent years, the economist says.

On top of these problems, Irish retailers now have to cope with the fact that the Irish shopper spent 30% more abroad in the first three months of this year, while growth in the tourist spend here was only 2%. This, Dr McLaughlin says, is partly down to the IKEA effect, or the leakage of spending to Northern Ireland for items such as clothing, furniture and food.

The report predicts that GDP growth will be zero in 2008, while GNP growth will be 0.6%. Next year both GDP and GNP growth will reach 1.5%. Unemployment will hit 6% by the end of this year. Inflation will fall next year after remaining 'stubbornly high' at an average of 4.5% in 2008.

However, the economist says that the forecasts are clouded with uncertainty - oil prices, ECB policy, the persistence of the credit crunch, the shape of a US recovery and the outlook for the dollar. 'Our view is that Irish house completions will not fall forever, and at some stage will cease to become a significant negative for growth,' Dr McLaughlin predicts. He also says that the Government will have to trim the growth in current spending to around 4% in 2009 is it to keep the fiscal deficit below 3% of GDP.

'A fall in oil prices and lower interest rates would lead to strong growth than forecast, but neither of these is guaranteed,' the economist concludes.

Source: RTE, http://www.rte.ie/business/2008/0711/economy.html

Date : 11-07-2008