By John Teeling
Presented to ISME Lunch
Burlington Hotel, Dublin
May 31th 2013
1
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….
2
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
3
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
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
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
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
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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
Irish Future – Near Term?
1.
2.
3.
4.
5.
6.
7.
Continued low domestic demand leading to
greater pressures on business
Foreclosures and forced sales to increase as they
always do at the end of a recession
Banks must continue to rebuild their balance
sheets so they are reluctant to lend
Banks cannot and should not lend to business
which are not viable in the current climate
Austerity has to continue. If the economy grows
little then state income will not rise so big
deficits continue
Still no inflation
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
What Can We Do – Short Term I
1.
2.
3.
It won’t get worse
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
Create a new ICC and ACC which lends working
capital for
a)
b)
Manufacturing, with preference for exports
Agricultural machinery/inventory loans
This will help to expand supply which is mainly
export
10
What Can We Do – Short Term II
3.
4.
5.
6.
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
Expand the numbers of small scale construction
projects – school extensions etc. Big projects
rarely if ever are cost effective. Construction has
a big multiplier
Cut employers PRSI on manufacturing ventures.
This makes them more competitive
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
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
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
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
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
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