They say that when America sneezes everyone else catches a cold. So what effect will the financial crisis across the Atlantic have? John Reynolds asks business leaders for their assessment
THE US looks as if it may already be in recession, with the British economy not far off. Last week, the Central Bank’s latest bulletin warned we should expect “subdued performance” in the Irish economy this year.
With a flurry of recent economic data pointing to a sizeable drop in consumer confidence, a slowdown in the service sector, and increased unemployment, the Sunday Independent asked a number of economists and top business people whether they thought the economy is heading for a recession this year.
Willie Slattery, State Street Ireland
WE are heading into a more difficult period than we’ve been experiencing in the last 10 years. I don’t think it’s controversial to say that.
In technical terms, it’ll be close to a recession and it’ll feel a bit like a recession.
But we’re coming from a period of prosperity — the highest in our history — so what’s happening needs to be seen in that context. In the last six months, the global credit crisis has impacted our banks’ willingness to lend money.
Given our high reliance on construction-related activity, this has a bigger impact on Ireland.
Dr Alan Ahearne, Economist, NUIG
My basis for saying we’re heading into a recession is because of the slump in new home building, which accounts for 10 per cent of our GDP.
A 40 per cent slowdown here wipes four per cent off our GDP. So the rest of the economy would have to grow at 4.5 per cent just to get us level.
However, there are significant risks that the rest of the economy will slow down as well. The US economy is in recession, as Ben Bernanke admitted earlier this week. With the strong euro, many analysts expect the UK to follow suit, and this will depress our exports.
Consumer confidence here is weakening and unemployment is growing. Add it all together and there’s no engine of growth this year. Unless conditions in global credit markets ease significantly, then I think the prospects for 2009 are also becoming quite grim.
Dr Alan Barrett, Senior economist, ESRI
WE estimate 1.6 per cent growth in 2008, so I’m reluctant to say that we’ve hit recession territory yet.
House building is slowing, but increases elsewhere in the economy will compensate for that.
However, this is partly based on a reasonably optimistic view of services exports. They’ve become a bigger part of the economy in the last few years, growing at a double-digit rate.
We see that as the engine of growth. But if the world economy goes into a steeper decline than we’ve forecast, we’d be worried about that sector.
Tony Keohane, CEO, Tesco Ireland
I don’t think there are any clear fixed signs of a recession or that customers have been affected. Clearly some sectors of the economy are being affected. You’d have to be on another planet not to know this, but this doesn’t seem to be impacting yet on customers who shop at Tesco.
There is a danger we’re going to talk ourselves into it, which we should be alert to. There is a slowdown obviously but the economy is still growing and customers are still spending money.
We’re progressing confidently with all of our plans across our business here. There’s no data from customers saying we should change anything we’re doing at the moment.
Guy Hollis, CB Richard Ellis Ireland
THE economy is simply entering a phase of slower growth. Our phones are still ringing, office take-up is good and there is continued good activity in industrial and retail leasing and sales markets.
These aren’t signs of a country going in to recession.
I don’t believe we are heading into a recession.
The full extent of the fall in Irish house prices from peak to bottom will be close to 15 per cent but it will take the indicators a number of months to demonstrate this. Average house prices are likely to fall further than this.
Terence O’Rourke, Managing partner, KPMG
I think we’re into a slowdown, which will continue to get slower. Having said that, our clients are still doing ok. But businesses are cutting back on discretionary spending and areas such as advertising, sponsorship and recruitment. This might cause a ripple effect.
These firms are just being cautious — they’re not in trouble. Deals are still being done and acquisitions are going ahead, which is positive.
John Herlihy, VP, Google Ireland
IT’S too early in the year to call as you’d need to see consistent decline in GDP over at least six months of this year, but Ireland needs to be vigilant.
Too much current economic discussion seems centred on short to medium-term property prices. Multinationals continue to show their commitment in terms of investment and job creation but costs must be kept competitive. Ireland needs to accept lower, yet healthy by comparison, rates of economic growth. We’ve had a decade of meteoric growth and our expectations are perhaps too high.
Most European countries would be pleased with low to middle single-digit annual growth. At Google Ireland, we’re very confident about our business operations here, with over 150 job positions advertised at present.
Mark Duffy, CEO Bank of Scotland (Ireland)
I don’t think there will be a recession. There’s a contraction and there’s a disconnect in the financial and money markets. Bear Stearns was a tipping point.
But in the coming months it will hit customer business in terms of bank pricing and more conservative lending. It’ll get worse if the liquidity crisis continues.
The economy will go through a rough patch but it will pick up in the second quarter of 2009.
If it doesn’t, things will get worse but we won’t go into a recession.
Ronan Colleran, Accreate Recruitment
NO ONE wants to say the “r” word. Perhaps it’s more of a serious slowdown?
In recruitment, perhaps we notice what’s happening earlier than other businesses, particularly in banking and financial services.
As a result of the credit crisis, it’s a lot more difficult for people to get funding for their businesses.
This week I’ve heard that the banks have recruitment freezes on and the next step is that they’ll look at cutting bonuses and cutting costs. This isn’t great for their staff morale, particularly when there is other negative news and sentiment around as well.
Perhaps other sectors won’t be hit as hard, but the sentiment is so poor at the moment that there are signs that the slowdown is seeping into the broader economy.
Philip Earle, Glenbay Construction
Things have got a bit tighter out there, but we’ve seen it a lot worse in the 23 years we’ve been in business. I don’t think we’ve hit a recession.
But we’re seeing more enquiries coming in during the last month or so, so we’re more confident than we previously were.
We still feel we’re going to achieve the same turnover as last year or possibly increase it.
We’ve tightened up and renegotiated with sub-contractors, and we can see they’re coming back to us and looking for work.
Noel Smyth, Alburn Developments
I DON’T believe we’re going into a recession or that we’ll have one.
The last time we had a severe recession was in the Eighties, when interest rates were about 15 per cent. But we were tied more to sterling and the UK economy back then.
We have money to spend on infrastructure, which means we’re keeping jobs at home.
The US has identified that to get through this, they need to spend about $2tn on infrastructure, similar to Roosevelt’s new deal after the Thirties depression.
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