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By John Teeling Presented to ISME Lunch Burlington Hotel, DublinMay 31 th 2013 1.

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Presentation on theme: "By John Teeling Presented to ISME Lunch Burlington Hotel, DublinMay 31 th 2013 1."— Presentation transcript:

1 By John Teeling Presented to ISME Lunch Burlington Hotel, DublinMay 31 th 2013 1

2 2 I Had Two Approaches I Could Follow Today A. The half empty approach: A big whinge on whats wrong and how bad it will be – basically we are bunched. B. The half full approach: Look up, the worst is past, build on what we have, get the engine going again I’ll do a bit of both but….

3 3 But..  The stock market says the great recession is over  House prices are rising. First in the US. Spotty here.  Employment growing  Confidence returning  There may be small signs of inflation  Overseas capital with cheap money will buy up Irish assets

4 Where Are We Internationally?  The hangover from the credit party continues  Deleveraging continues resulting in low demand  Result: low world growth rates – the world is in a torpor  The economic decline of the Western world relative to the BRICS and MISTS continues  The Emerging and Developing Economies, while growing fast, will be volatile. There will be crashes  Inflation is dormant despite the printing presses  Politically it is a mess, Islam, The Middle East, Arab Spring, Korea. 4

5 Where Are We in the EU? – Storm Clouds  Is a break up coming?  Austerity continues, recession and low growth  Still excess expenditure over income  Major imbalances in Euroland  Growing political uncertainty. Will it break-up? – the UK would exit today if there was a poll.  The Euro is inherently unstable  Historically low interest rates  Unemployment – predominately young males – 20 millions!!! 5

6 The State of the Nation - I  Ireland is in a depression not a recession  The bigger the bubble the bigger the burst. We had a 20 year party  We had an almighty bubble so the consequences have to be severe  We thought we got rich  We continue to live beyond our means – borrowing 1 billion Euro a month to meet current expenditure – Health, Social Welfare and Education use all the revenue taken in by the State  Living standards will continue to fall. Should a young female/male in their early 20s with no special skills be able to afford an apartment and a car?  Deleveraging at state, corporate, bank and personal level will continue  The result will be, at best, weak demand 6

7 The State of the Nation - II  Why not political unrest – Saved once again by emigration & fiddling the books on the 280,000 deemed to be disabled. Real ratio of unemployment about 30%  Ireland Inc. and its people are not prepared to pay the price of their excessive gorging on cheap money – blame everyone except themselves  The culture of entitlement is ingrained at all levels in Irish society  Wages are too high, pensions are too generous, welfare payments too high  Business men and investors do not want to pay the price of their greed and wastefulness – by that I mean failure and bankruptcy 7

8 The State of the Nation - III  Bank loans – a total nonsense to blame the bankers or politicians. We did it of our own free will. We should repay or lose the venture  Capitalism without failure cannot work – Creative Destruction  By asking for write-offs or rent write downs we want the taxpayer or pensioner to pay – there is no-one else  We look at the big picture – “how does it affect me”  Young middle class couples (30-45) are in debt so deep that they can never earn their way out 8

9 Irish Future – Near Term? 1. Continued low domestic demand leading to greater pressures on business 2. Foreclosures and forced sales to increase as they always do at the end of a recession 3. Banks must continue to rebuild their balance sheets so they are reluctant to lend 4. Banks cannot and should not lend to business which are not viable in the current climate 5. Austerity has to continue. If the economy grows little then state income will not rise so big deficits continue 6. Still no inflation 7. Foreign investors with cheap money will buy up huge swatches of Irish property, land and even business. An Ulster Bank O/D is 15.5%, property yields are 8% upward. Japanese and American investors have money at 1 to 2% 9

10 What Can We Do – Short Term I 1. It won’t get worse 2. Fix the housing problem by: a) Creating a company which takes over mortgages at market rates b) Works out individual monthly payments with existing owners c) Has co-ownership so if and when property is sold any capital gain is shared This frees up big expenditure and pent up demand 3. Create a new ICC and ACC which lends working capital for a) Manufacturing, with preference for exports b) Agricultural machinery/inventory loans This will help to expand supply which is mainly export 10

11 What Can We Do – Short Term II 3. Encourage more failures – by this I mean even more help for start-ups. I only half believe this because we have a very good system. One simple thing is to make the EIS/BES simple – it is unworkable at present 4. Expand the numbers of small scale construction projects – school extensions etc. Big projects rarely if ever are cost effective. Construction has a big multiplier 5. Cut employers PRSI on manufacturing ventures. This makes them more competitive 6. It is very tempting to increase credit availability for non wealth generating businesses. While I have doubts it could help to improve confidence and maintain employment 11

12 Ireland to 2030 - I I could make a case that the world is bankrupt and a financial crisis looms – maybe. The Eurozone could collapse – a bigger maybe. But now look at the positives.  Can we rediscover the skills, creativity and energy of the 1990s to develop and prosper in this new world - YES  In the coming two decades 2 billion people all over the world will become middle class  They want everything – food, diamonds, whiskey, education, holidays  Rapidly aging populations with disposable income will provide a large silver market for leisure, health, culture and education  There are likely to be shortages of food, particularly beef and milk – areas we are good at 12

13 Ireland to 2030 - II  There will be water and energy shortages  Advances in energy – fracking, could dramatically change the dynamics and economics of manufacturing in developed countries  3D printing will develop fast enabling precision manufacturing of specialist parts  Communications costs will fall to the marginal cost 13

14 Opportunities for Ireland  Agribusiness can flourish, milk, whiskey, animal by-products  Water – both as an essential ingredient, food, pharma, biotech or as a leisure activity  Our young educated English speaking workforce is a resource in an ageing Europe  The disadvantage of an island location is minimised by modern communications media 14

15 A Few Off the Wall Ideas  Devalue internally – increase VAT on imported consumer goods and eliminate employers PRSI on exports  Encourage inflation everywhere – it wipes out debts. If we keep a tight lid on social welfare costs and pensions inflation will eliminate the deficit  Pray for an oil find in the Atlantic – it will be transformative  Hard to see wild days of the 90s returning but it will get better 15

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