I know several SMEs who are generating cash purely by reducing stocks. In the end a business (and by extension the owners and their families) survives based on generating cash. In the good days this was an area that was overlooked - slow moving stock was ignored. I’m advising several businesses and one part is to turn old stock into cash (even if they make an accounting loss - it is money in the bank).

When does it stop? Depends how high stocks went. Last Christmas was a bad one for retailers, probably the first serious hit of this recession. This year’s purchasing will reflect that and I would expect to see imports down (as we have seen for much of the year). But you’re right, at some stage the tide turns, stocks get too low and retailers start buying again.

I agree confidence plays a big part in recovery but if you overplay this too early and there is another dip it will be all the harder to get it back. I would prefer to see how the next quarter plays out in terms of unemployment, tax take and retail spending. The two Brians also have the opportunity to make a complete mess of the budget!! If we get to 31 December in reasonable shape then let’s sell the recovery story in 2010.

Thanks for that, Eoin. I didn’t know. So, they’ve reduced their forecast fall in GDP between 2008 and 2010 from -11.2% (in the DKM survey) to just -7.0% now. A similar pattern to Davy. ESRI is the big one I’m waiting for. Their’s usually gets massive publicity in the media. RTE and the Irish Times usually lead with it. I think it will be due in the next week or two. I will be very surprised if they don’t follow suit.

Now that the Irish economy is coming off its bottom, it is time Brian Cowen and Brian Lenihan came off their bottoms, and started highlighting all this and engendering some economic confidence. This time tomorrow, they’ll be addressing the world’s media at the ‘Yes victory’ press conference (at least, I hope it will be a ‘Yes victory’ press conference). That would be an ideal opprtunity to inform the world’s media that, like Mark Twain’s, the death of the Irish economy has been greatly exaggerated. I’m not one for painting a falsely rosy picture or just tring to talk the economy up for the sake of it. But, they need to realise that engendering confidence in the economy (both among consumers in Ireland and investors aboad) is a key element in any recovery. And, highlighting to the world’d media that all the economic forecasters are now dramatically revising up their forecasts for GDP growth in Ireland would certainly help in that respect. So, over to you, Brian and Brian.

FYI - NCB’s current (as of this afternoon) GDP forecasts are now -6.7% in 2009 and -0.3% in 2010. Not sure if you’re aware of them as they’ve only re-done the numbers this week. Some good analysis from you, keep it up.

@Cillian

Because it is a large international organisation publishing forecasts for lots of countries, the IMF forecasts are out-of-date. They were probably compiled weeks ago. Since the much better-than-expected GDP and Live Register figures were published only in the past week, the only organisation to publish revised forecasts that took these into account was Davy Stockbrokers. They published their revised forecasts on Wednesday. As I said above, they drastically revised down their forecast for the fall in GDP between 2008 and 2010, and they also revised down their forecast for peak unemployment to 13.5%. I’ll be amazed if the other Irish forecasting organisations don’t similarily revise their forecasts in the next few weeks.

@Stuart

You are an expert on retail. Do you know much about stock levels and when they might bottom out?

I had another look at the Q2 GDP figures today. I noticed something that few in the media or here have have commented on. In Q2, nearly everything was up on Q1. Consumer spending was up 0.5%, investment was up 5.7%, exports were up 0.2%. The only reason Ireland was not officially out of recession in Q2 was that stock levels fell by 1.1% of GDP. This follows falls in stock levels of 1.4% of GDP in Q1 and 1.3% in 2008 Q4. Such a run of falls in stock levels is unprecedented. Clearly, it must end sometime before too long, otherwise the shops will ressemble those in Bucharest before the fall of Caesescu, and there will be food riots. Any idea when stock levels in retail will stop falling. When it occurs, and stock levels rise again, there will be a large one-off increase in GDP over on top of whatever actual growth in GDP is occurring.

@Ray

Thanks for the compliments. I’m delighted your business is starting to pick up. Its because of the hard work of people like you that the economy is coming out of the recession much sooner and in much better shape than most economists forecast. Its just a shame that hard-working people like you have to pay part of their taxes to support academics like Morgan Kelly, who spends most of his time bad-mouthing the economy to the world’s media, damaging it in the process. And, while I don’t know anything about sacking him, take comfort from the fact that, the harder you and people like you work, the more foolish MK’s forecast of a 20% fall in GDP is going to look in a year’s time.

I do believe we can learn from them.

@Joseph
I do get the impression people are a little more optimistic at the moment and some businesses I have been involved with have had better months. But I agree the “shoots” are fragile. A double dip would be terrible for confidence. Hopefully we see a yes vote today, NAMA passed (just to remove the uncertainty over credit) and a well thought through budget.

@Ronnie O’Toole - you used the word “suprisingly” a couple of times in an earlier post. I think they are surprising alright and a bit suspect. My view is that we are still in line for a double dip when governments stop throwing money at economic problems (because they can no longer afford to) - I was just looking at what happened to the US car market post the cash for clunkers programme - http://www.irishtimes.com/newspaper/breaking/2009/1002/breaking28.htm

If you think we are likely to get this “investment” back then the real deficit is €4bn lower at €22bn.
If you think we are just throwing money in a black hole then the real deficit is €26bn.

Back on-topic I see the latest IMF projection for Irish unemployment is for an increase from 12% in 2009 to 15.5% in 2010.

Something to chew on and clearly going in the opposite direction to the prominent insistent voices on this thread.

probably the same figures the ‘46′ based theirs on when they deicded they needed a snappy headline for their last opinion piece in the IT…

The latest available poll of Irish economists by Reuters shows the median deficit forecast of €22bn. What are you basing your €25-€30bn estimate on?

Surprisingly positive (Danish) unemployment figures
From July to August the unemployment rose by 700 persons and thus remained on an unemployment rate of 3.7%. The total number of full-time unemployed persons in August was thus 103,700. Jyske Bank and Nordea had expected an unemployment of 4% and 3.8% respectively. Data from Statistics Denmark show that this is the third month running that the unemployment rate is 3.7% of the labour force.

Unemployment reached its lowest level in modern history in June 2008 with 45,900 full-time unemployed persons, seasonally adjusted. Since then it has increased by 57,800, corresponding to 126%. On average, there have been 4,100 new unemployed persons each month.

The better than expected development of the unemployment figures is, however, influenced by increased re-training initiatives. Furthermore, the unemployment figures for August are affected by some uncertainty, among other things due to changes in people’s holiday patterns.

A useful analysis. Sadly likely to be true. Are we running out of bubbles? That is inevitable. Looks like Dreaded Estate has been hopelessly optimistic.

Can you tell me how to fire incompetent academics in Ireland ?? They go on about the Bankers ad nauseam but conveniently forget their own.

I know that they aren’t. Having looked for a long time now, all day every day, they just aren’t there.

I also know that a lot of people, like myself, have gone back to college this year in desperation (I’ve gone back to do a masters in a totally different field in the hope it gives me some other options). I know this because I’m meeting them every day. I presume that we no longer figure on the unemployment register even though we actually are?

As I said in the third paragraph from the end, one of the main forecasters, Davy, whose forecast in the DKM list I attacked (-10.5% fall in GDP between 2008 and 2010), yesterday revised their forecast to a -5.2% fall in GDP between 2008 and 2010, which is pretty close to my own. I will be interested in how the other forecasters revise their forecasts in coming weeks, particularily ESRI, whose forecasts are usually quite similar to Davy’s, but who are considered the most authoritative and whose forecasts receive the most publicity in the media.

But, you are quite correct. Only time will tell.

Although I think we can safely say at this stage that Morgan Kelly has made one of the worst economic forecasts of all time and has damaged the country’s economic reputation in the international media in the process.

GDP flatters to deceive.
GNP is a far better insight into the real economy.

And I am only an engineer.

But personally I think your pessimistic forecast is very optimistic.

The point I was trying to make, in relation to hopelessly inaccurate GDP forecasts, related to their y-o-y forecasts. In fact, these are the only forecasts most forecasting organisations (like ESRI, Davy, IMF etc) make. Hardly any of them make quarterly forecasts. That these y-o-y forecasts are indeed turning out to be hopelessly inaccurate can be gleamed from a document published by DKM on Sep 20 (link below), in which they give a list of then current forecasts for GDP growth in 2009 and 2010 by 15 of the leading forecasting organisations. Its on page 2 of the document.

http://www.dkm.ie/uploads/economy_watch/Economy%20Watch%20September%202009.pdf

The fall in GDP between 2008 and 2010 forecast by each of the forecasting organisations at that time (i.e. just 2 weeks ago) was as follows:

BOI -7.0%
NIB -8.0%
ESRI -10.2%
Davy -10.5%
Dept Finance -10.6%
Bloxham -10.8%
Ulster Bank -10.8%
Central Bank -11.0%
NCB -11.2%
IBEC -11.3%
OECD -11.3%
IMF -11.5%
EU Commission -11.6%
AIB -12.0%
Goodbody -13.1%

But, as I showed in my earlier post, its now far more likely that the fall in GDP between 2009 and 2011 will be in the range 2.5% to 6.7%, with a probability that it will be in the middle of this range, i.e. about 4.6%. It looks like the only ones who came close were the much-maligned Dan Mclaughlin (BOI) and Ronnie O’Toole (NIB), who posts here. And, I’m now not the only one who is of that opinion. One of the organisations in the above list, Davy, last night revised their forecast fall in GDP between 2009 and 2011 from -10.5% (as in above list) to just -5.2%. I expect that all the others will soon follow suit.

Pointing all this out isn’t just an academic exercise. These wildly inaccurate forecasts have been repeated across the world’s media as evidence that the Irish economy was in total meltdown, when clearly it wasn’t. That has damaged confidence in the economy, both among consumers at home and investors abroad. In addition, such wildly over-pessimistic and inaccurate forecasts may well have affected Ireland’s credit rating and the yield on Irish government bonds.

In fairness, all of the above forecasters seem like Nostradamus, when compared to Morgan Kelly. Earlier this year, he gave an interview to the New York Times (link below), in which he predicted that the Irish economy would ‘vapourise’ in 2009 and 2010, and that the fall in GDP between 2008 and 2010 would be 20%. Its now clear that this was one of the worst forecasts ever made by an economist. It must have done untold damage to Ireland’s economic reputation and foreign investors’ confidence in the IRish economy. I don’t see that paying academics to damage the economy in this way is a sensible use of taxpayers’ money. If the Government is looking for cuts that actually benefit the economy, his salary should be high on the list.

http://tremendousnews.com/2009/03/01/irelands-economy-almost-in-the-shitter/

Initiallly thought to be about 20 billion it is more likely the current Deficit will be between 25-30 billion for this year.
So by right this means we need to have 5 billion cuts this year rather than 4 unless we increase taxes again.

Then we need a similar size cut for the next year and so on for five years

So in two years time our economy will have been cut by 10 billion from where it is presently, in three years 15 and so on.

All the while we will be adding 25 billion to our national debt this year, 20 next year 15 the year after 10 the year after and 5.

So all going well our national debt will have increased by 75 Billion in 5 years.
Then we have the likely problem of increasing interest rates.

I consider myself left of centre but the mathmatics are very very stark and the resistance against the required cuts from the Public and Unions will be very very dangerous.

The public sector say they did not share in the exuberance of the Celtic tiger and therefore should not now have to pay for it.

I am afraid that is not true, Every time that the government gave Unions the pay increases and extra employees they desired because they were under the misconception that they could afford it, the public sector were sharing the spoils of the celtic tiger in a latent way.

I remember nurses going on strike in Ireland a few years ago because they wanted a 15% increase in wages and the government only wanted to give 10%. At the Same time nurses in the UK were going on strike because they wanted 2% and were only being offered 1%.

Everyone, including those in the public sector, especially at the higher levels (both pulic and private) lost a grip on reality. That’s what happens in a bubble.

I think the only way the country can avoid bankrupting itself is if the government convinces the higher paid Public servants to take large salary reductions and then slightly lower ones as peoples salaries get smaller.
They must also try to get buy in from Private sector unions representing well paid workers to take part.
The Cuts have to start from the top down to give union leaders any chance of appeasing the larger numbers of people who earn less.

I genuinly think if a big gesture was made/ forced on the elite in Irish society the unions would make an effort to appease their members. They would have to except the bona fides of the government in tackling the magnitude of the problems we are in.

The 3.5% pay claim is insane and the Unions know this, however they have to be seen to support their members in the absence of a genuine top down effort of solidarity in the society.

Far from the economic recovery John the optimist sees, I see a problem of the magnatude that it is looking un-get-out-able. Large scale industrial unrest could push us over the edge.

Excellent point on Sterling, Frank. And equally, will a recovery in the continental euro area present threats in terms of tighter monetary policy? That has been discussed, but to what extent is it actually taken into account in the determination of policy? There seems to be a hand-in-the-air attitude concerning such external factors.

We cannot control them, but at least we should plan for them.

the value of Sterling is hugely important for the SME export sector, and i know first hand that a lot of them are really struggling with the adjustment that EUR/GBP’s surge has caused them over the last year. 90p seems to be the line dividing profitable from loss-making operations for their exports at the moment.

no offence, but having just read your overnight ramblings about the US “endless war” machine on one of the other threads, i don’t think anyone here is “lowering the intellectual content” in relative terms. People generally read your posts with an open mind, so maybe you might do them the same courtesy?

One area that seems to have slipped uder the radar of the analysis on the economy is the weakness of the UK pound.

We spend so much time discussing the effect of the US economy on Irish prospects but very little on our major trading partner which is the UK.

Will our recovery be hampered by the weakness of sterling ?

The UK also tends to be the first port of call for our unemployed and a prolonged recession there could have a big impact on the economy here.

I would be interested in a thread on sterling if possible.

Not. The debt levels and credit destruction is all still there. Please let’s not lower the intellectual content by waving wet kn&&&ers in the air? It is only human to want things to get back to normal. But there is a new normal. Tone it down, huh?

Wonks get excited by stats, I get it. But the fun da mentals is all wrong. And you all know it.

It is indeed a pleasure to read your posts. Like other self employed most of us take little notice of the crap in the media about the economy. We now have economic experts ranging from failed politicians and business owners,and “losers” generally. I loved Michael O’Leary’s recent go at “Losers” Ganley, the Shinners and whingeing Higgins on the Lisbon Treaty. Despite what may be written by the naysayer contributors the Private Sector across the board has been busting their guts trying to manage this recession and it is starting to get sorted with the exception of the construction sector which has a long way to go.This is being done in a background of abysmal Political Leadership and a Banking system in crisis. For the first time in a year our bank account has started to run in credit which is due to better credit management and activity. The phones are starting to ring more often again. Customers are starting to talk about new projects. We are not yet looking at increasing employment but maybe we may not have to fire highly regarded and talented staff. Friday for me is a key determinant of what type of future we want to have in this country. Keep up the analysis John it cheers me up………

According to Eurostat, the fall since peak (Q1 07) in Irish GDP (to Q2 09) was 10.5%, exceeded in the EU only by Lithuania, Latvia and Estonia (around 20% each). The fall in GNP since peak (Q3 07) in Ireland was 13.6%. It is important to allow for the fact that the peaks differed in the different countries - most peaked 3 or 4 quarters later than us.

For the EU 27, the fall from peak (Q1 08) in real GDP to Q2 09 is 5%. For the six largest EU countries, the falls from peak are: UK, 5.5%, Poland zero, Italy 6.5%, Spain 4.2%, France 3.3% and Germany 6.4%. I don’t see how it is misleading to describe the Irish recession as unusually deep. What happens next is anyone’s guess, of course.

“I think it is still fairly optimistic to say that the average quarterly growth will be 0% over the next 7 quarters.”

I would also add that the government through borrowing is effectively providing a 10%+ stimulus to the economy through borrowing.
As this is cut back, which it has to be, that stimulus will be removed from the economy.