Pre-Budget Outlook

The report forecasts a fall in GDP in 2010 of 1.5 per cent. I really can’t see where they get that figure from. Barring a double-dip global recession, I think its highly unlikely. Of course, their previous forecast, made just a few months ago, was for a fall in GDP in 2010 of 3.0 per cent. So, they are not exactly masters of precision. Most other forecasters are more optimistic – for example: ESRI -1.1%, Goodbody -1.1%, NCB -0.3%, BofI 0.0%, Davy +0.7%. The average of these other forecasters is for a fall in GDP of just 0.4 per cent in 2010, comapred with the DoFinance’s 1.5 per cent.

I have no wish to start a debate on economic forecasts for 2009 and 2010(as pointless as starting a debate on forecasts for the big football matches this weekend). But, just for the record, my own forecasts for GDP growth in 2009 and 2010 are:

2009: -5.9% (v DofFinance -7.5%)
2010: +2.8% (v DofFinance -1.5%)

Quick question:

Does the public deficit change by a significant amount when measured as percentage of GNP rather than GDP?

@ JohnThe Optimist

Davys had their take on it out this morning – they reckon the govt is being overly bearish on the economic forecasts, particularly on the unemployment expectations of an average of 13.75% for 2010; Davys reckon it wont even spike their on a monthly basis.

Philip,

Once again you’ve improved on my general education by posting the link to the DOF document. Normally, I would not read the original document, instead lazily relying on media and poltical commentary for information and analysis of what the DOF want us all to do next. Rather than the dry and turgid analysis I anticipated, the document impressed me as a very political statement of our current state of affairs; probably deliberately so.

The DOF effectively dismantle ICTU’s preferred approach, and that of their political fellow-travellers, to dealing with the financial crisis by deferring action to correct the public finances to 2017 and beyond. It’s hard to argue with the statement that “mounting debt interest would ulimately represent a drag on medium and long-term growth with the result that much harder decisions would be inevitably required in the future to deal with the problem.” Or that ” the window of opportunity to take action to stabilise the deficit is now – at a time of falling prices and low interest rates, the impact of reduicing spending is less…” Even at that, we will be only ‘running to stand still’ as DOF put it; a phrase they might have employed as a fitting sub-title for their document.

What was most intriguing was the statement that tax revenue has dropped to the levels of 2003, yet expenditure (and employment levels) in key departments vastly increased in the intervening period, by as much as 70% overall. The high spending Departments show increases, for example, of 77% in Health and Children; 96% in Social Welfare; 59% in Education, with 36% in ‘others’. The reality is that we could never afford the 2,500 or so extra gardai that were appointed, or the 20,000 plus extra staff in the health area or the teachers or civil servants and so on, in the first place. Their employment and remuneration relied on ‘construction bubble’ taxes, now gone in the bust and unlikely ever to return. Reading through that section prompted the cynical thought that as a nation we’ve clearly been a lot sicker and more lawless than I had ever imagined!

The ‘killer punch’ in the DOF analysis is that if we let this opportunity pass, national debt will rise to 175bn by 2013 and servicing that debt would cost between 25-30% of then tax revenue. So even if John the Optimist’s comment is right and they’re being a bit too bearish about the economic forecasts, it’s difficult to find arguments against making a 4bn adjustment now. At least politically, the DOF have set out a strong case.

@ Eoin

Davy’s Rossa White has forecast a 4% rise in GNP in 2011.

Maybe or maybe not.

I prefer the way the ECB gives a range when forecasting.

It has a lot more credibility as pinpointing a specific figure 2 years ahead may be better than astrology, but not much.

There is so much punditry but nobody keeps the score.

It often strikes me when watching CNBC that a brass neck is a lot more important than prescience.

This gem from Bank of Ireland Private Banking, May 2008: “Whilst we are undoubtedly in one of those periods where investor confidence will tend to override investment rationality, the effect of this is that investors will miss out on the very best days. Private investors always look for too much evidence that the recovery is underway and thus miss the best returns. Missing the best 10 days can mean missing out on a third of the returns if history repeats.”

@ Michael and Stuart

i agree we shouldnt follow the Davys stuff by jumping in with both feet. But we shouldnt dismiss it in entirety either. And i personally believe Donal O’Mahony to be the best of the current set of Irish economists given his track record in previous years (granted these were generally aimed at market prices rather than underlying economic activity). And they’ve also given a fairly short term specific opinion on unemployment peaking below 13.7% next year, something which even in the next few months will be fairly easy to tell how their forecast is doing.

@JohnTheOptimist
I won’t consider a further fall in GDP or GNP at this stage to be a double dip recession.

I am certainly not an economist but I find it somewhat irrelevent whether the economy contracts by 1% or 3% when the reality is that a whole generation will have seen their real incomes fall by 20% plus and be mired in negative equity for years to come.