On the day that’s in it, let’s examine some of the big economic and financial questions that will impact on our lives in 2014.
Will the economy continue to recover slowly or will it slip back?
The short answer is that the economy should keep moving along in a positive direction but it could be derailed by another banking crisis, sparked by the ECB’s stress tests.
The good news is that Ireland’s two largest trading partners, the USA and the UK, are performing better than expected. In the UK, the economy has turned around much quicker than even the most optimistic Tory could have hoped for. However, the UK is back to its old tricks again as we are seeing, especially in London, a massive bubble building in the housing market and a return to bank lending to the housing market in general. This makes the population feel a bit richer, but this could be derailed again by a slump in house prices, particularly in ridiculously priced central London.
Much depends on how Mark Carney, the (Irish-passport-holding) governor of the Bank of England, reacts in the next 12 months. My hunch is that he will keep the party going as long as he can, rather than tighten interest rates too quickly. Even if there is a small rise in the UK’s rate of interest, the economy is growing at an annualised rate of 3pc and unemployment is falling quickly towards 6pc. Both of these factors should keep up consumer spending in our biggest single trading partner.
All of this implies that the UK will perform healthily this year, which is great news for labour-intensive Irish exports such as agriculture, tourism and services. Let’s not forget that Ireland and Britain do €1bn of trade with each other per week.
Meanwhile, in the USA, the Fed has signalled “peak stimulus” and will begin the process of trying to unravel five years of pumping cheap money into the economy. This will have a bigger than anticipated impact on stock prices than the financial markets seem to be worried about. But all told, the US economy is creating jobs, its housing market is not just stabilised but is improving across the board, and wages will begin to rise this year as workers demand a bit more of the pie.
In the past few years, the spilt in the US between wages and profits has been skewed to profits, so much so that US corporations are sitting on the biggest cash pile in history. This has to be spent and it will either be spent on investment or wages, or both.
The bit that is spent on investment is important to Ireland because that is the bit that may be invested by multinationals here.
As long as global tax authorities don’t make good on the intentions of the G8 in Enniskillen, 2013, and try to tighten up on flagrant tax manipulation by countries such as Ireland, extra multinational investment, driven by US companies having too much cash on their balance sheets, will continue.
But what about domestic demand?
This is the major question for most businesses in the next 12 months. In the past three months there was evidence the domestic part of the economy could begin to improve, buoyed up by a better-than-expected improvement in the jobs market and some increases in house prices. As a result, tax revenues were slightly better than forecast and retail sales in October and November were strong, as too was the rebound in consumer sentiment. However, according to anecdotal evidence from retailers, the final weeks up to Christmas did not see a surge in spending as the retailers had hoped.
So where do we stand now in January 2014?
For the economy to chug along, domestic demand needs to recover because this is where the vast majority of Irish jobs come from. Domestic investment — a much smaller component of GDP than consumption — also needs to rebound.
Irish companies — like their counterparts in the US — have been saving hugely and paying down debts. This implies that there could well be a strong return to corporate investment this year, and continued small falls in unemployment.
Our recession has been a balance sheet recession. Balance sheets are broken; too much debt and plunging houses prices have caused the savings ratio to rise. This implies that there may be pent-up demand, which we are now seeing in the guise of “cash” buyers in property, but we may see this in other areas of consumer spending in the next 12 months.
But you may ask how can we have an uptick in consumer spending, investment and some house prices, while at the same time have double-digit rates of unemployment, shrinking bank lending and prohibitively higher marginal rates of tax?
This is because there are at least two Irish economies out there, and by and large the difference between the two economies is generational.
The middle generation between 30-45 has no extra spending power because of the legacy of the housing bust. They were the ones who bought houses in the boom and are the ones who suffered most in terms of negative equity.
THE younger generation in their 20s — the ones who have stayed — have actually benefited from the housing bust, as housing costs up until this year remain subdued. But they have little disposable income because wages for people in their 20s have fallen quite dramatically and schemes such as “internships” are becoming increasingly popular. These don’t pay well but are seen as the only way of getting experience to ultimately get a job.
The people who are spending again are the late middles between 50-65 who have built up savings, have equity in their houses and who are the ones emerging as “cash” buyers for suburban houses all over the country.
As European interest rates will probably go lower this year, it is difficult to see these broad trends reversing.
The one unexploded financial landmine out there is another bank crisis, as the new stress tests signalled by the ECB reveal that Irish banks don’t have adequate capital — yet again. This is a very real fear and if the banks need more capital, where will it come from?
It won’t come from the taxpayer, because we have no more money. Will the Government borrow from future taxpayers again? I doubt the financial markets would welcome Ireland borrowing more money to pay not for today but for yesterday. So where will it come from?
This is where the ghost of Cyprus lingers. Might it come from a raid on deposits over €100,000, as happened in Cyprus? I suspect it might.
If that happens, all bets are off and we slip back again.
If, however, the €24bn war chest borrowed by the NTMA last year is spent on the banks yet again, the landmine won’t go off, but the bill for the collateral damage will be given to the next generation and the next.
I believe this, sadly, could be the plan for 2014.
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If the Banks commence with “open season” on distressed mortgage holders, as threatened on a daily basis now and Government sit idly by or worse support the approach I believe all bets will be off, nothing will recover until the elephant in the room, mortgage debt is dealt with and for some people who have been existing with this desperate situation for 5 years now, it has to be getting very very serious in relation to the Family Unit and personal health forget about financial health, I believe a huge segment of the population see bad credit ratings as totally… Read more »
“if the banks need more capital, where will it come from? It won’t come from the taxpayer, because we have no more money.”
Very naive David.
Hi David,
No mention in the article during the talk about recovery of the profligacy of too much debt and too much money printing?
Save us the shite bonbon about your usual drivel.
Michael.
Remove Intext.nav-links.com pop-up virus (Removal Guide)
http://malwaretips.com/blogs/remove-intext-nav-links-virus/
At the end of the day it’s all opinions. I’ve read enough “2104 Predictions” by reputable economists by this stage, running the gamut from Recovery to Stagnation to Total Collapse, to not to take them seriously. The field of Economics will one day be assigned to the dustbin of follies alongside Astrology and Alchemy.
how can things look brighter when the world is built on credit. The financial sand foundations of the economy. The edifice will fall and perhaps this yesr.
http://blog.milesfranklin.com/are-you-demoralized-dont-be
Here is the financial Death Cross as described.
http://www.zerohedge.com/news/2013-12-31/2013-summed-just-one-chart
Does anyone know the timeline regarding the Irish banks stress test, firstly, and secondly, any possible bail-in? Thanks in advance.
Time will tell who is correct.
but do you have the correct time
http://www.stratfor.com/analysis/geopolitics-gregorian-calendar?utm_source=freelist-f&utm_medium=email&utm_campaign=20140102&utm_term=FreeReport&utm_content=readmore&utm_source=Stratfor+Subscribers&utm_campaign=bf1f576f29-140102_FR_Gregorian_Calendar12_31_2013&utm_medium=email&utm_term=0_1c43cbbe1e-bf1f576f29-48301329
The EU and Michael Noonan confirmed it is now law that depositors with more than 100,000 euros would be bailed in after shareholders and bondholders, in order to save the banks. Depositors, including retiree’s pension incomes, businesses, and savings for our children’s education are now up for grabs. It is important to note that the 100,000 figure is an arbitrary figure and there is a possibility that this figure could be reduced by an insolvent government faced with an imploding banking system. When you allow for the worthless bank shares given to the people in Cyprus in exchange for their… Read more »
From reading the following article one can only deduce that Brendan Howlin has spent the last 6 months nestled in some pot-infested cubbyhole high in the Rockies… he’s further off the charts than the Voyager space probe!
http://www.irishtimes.com/news/politics/irish-people-are-fair-and-they-re-not-stupid-they-won-t-reward-opportunists-or-destroyers-1.1641625
“irish people are fair and they’re not stupid. they won’t reward opportunists or destroyers.”
Dang Straight, you hobgoblin little man.
He will witness the evidence of this up close&personal in a very short timeframe.
Happy new year David and my fellow commenters. I would say the greatest threat to humanity in the years ahead are the transnational corporations, many of them richer than most nations, and who have largely usurped our national governments, and are today pressing for complete global hegemony on multiple fronts, such as the new free-trade agreements like the Trans Pacific Partnership. That our governments have been usurped and corrupted by capital has led to powerful anti-government upsurges such as the tea party and other anarchistic movements. But that our governments have been usurped and corrupted by capital is not a… Read more »
Latvia has officially joined the Eurozone… Welcome to the house of Fun! http://www.youtube.com/watch?v=GJ2X9SANsME “i’m a big boy now or so they say.. so If you serve my confetti currency I’ll be on my way…” Surveys indicated half of all Latvians were against this adoption, and that two thirds of them expected it to cause prices to rise. Memories of Nice Treaty, Lisbon Treaty reruns loom large.. tut tut what about respecting the Sovereign will of the people?. Within their ‘austerity’ program poverty, unemployment and emigration have all soared. “In all other countries which switched to the euro, prices rose. Most… Read more »
Some of the highest tides of the year are expected.
Revenue raised from LPT will be used be used to improve anti-flooding measures… along the Rhine and the Rhone.
The Dirty dozen tax hikes about to hit now. Savers are among those to be hardest hit, with the tax on interest paid for deposits set to shoot up from 33pc to 41pc from January 1. http://www.independent.ie/business/personal-finance/families-facing-dirty-dozen-of-tax-hikes-price-rises-and-benefits-cuts-29879619.html
Will they first tax savings before simply stealing them with “bail-in” ?
Amazing how everyone has their reading specs on and squint at the latest offering about the local economy or this or that trading bloc. Take off the glasses and get a pair of binoculars and gaze at the Swiss Alps. Zero in on Basel. Now focus on that tower on the hill. BIS BIS BIS BANK OF INTERNATIONAL SETTLEMENTS This is the private bank with diplomatic immunity for all enployees. Above the law of the land, any land. Here is the monetary policy set WITHOUT any input from any government. In collusion with the IMF are loans set and Austerity… Read more »
Indo’s health correspondent Eilish O’Regan reports on the government’s genocide plans –
http://www.independent.ie/business/world/european-fire-sale-greek-archipelago-for-85m-an-eu-passport-for-1m-and-polish-castles-for-a-song-29882895.html
Monetarists of all stripes are bey confused about “inflation and deflation”, and invent all kinds of silly “explanations”. Much better to have a look at the Triple Curve :
One can see the root of the monetarist self-induced torture. Physical economics is the key.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/2_China_Accelerates_The_Push_For_Its_Citizens_To_Buy_Gold.html
something 5fingers may have thought about?? :)
The new economy developing spontaneously.
http://dailyreckoning.com/
From the finfacts website;
“The Government’s widely anticipated decision to introduce a cap of €60,000 on the annual pension that can be provided from approved pension arrangements will have implications for over 27,000 employees from 2014. The penalty for exceeding the cap is a 41% charge on the excess value, on top of paying income and USC on pension, giving a net effective tax rate of nearly 70%”
70% it seems David on pensions above €60k.
Britain is Booming
Household finances at breaking point, says Shelter
http://www.theguardian.com/money/2014/jan/03/household-finances-breaking-point-shelter
PARIS, Jan. 2, 2014 (Nouvelle Solidarité): Jacques Attali, permanent Presidential advisor to Mitterrand, Sarkozy, and Hollande, and always in line with the global financial oligarchy, said the world is set for a new financial crash and a military confrontation among superpowers. “The financial crisis globally has not been dealt with in any fashion, even if we do have strong growth in the United States but a growth that is blown apart by a [Bernard] Madoff policy. In essence, the only difference between Madoff and the Western governments is that Madoff is in jail. Other than that their policies are identical.“.… Read more »
Only One in Three Italians Supports the Euro Jan. 2, 2014 EIRNS — An opinion poll published by the major Italian daily La Repubblica Dec. 30 shows that support for the euro has dropped to historical lows in Italy. Support is now at 32.3%, a drop of 11.2% in one year. Commenting on the poll, opinion-maker Vittorio Feltri wrote in Il Giornale: “It is a collapse. The reason is that all Italians realized that Brussels is producing swindles all the time, demanding enormous sacrifices and taxes and, in exchange, gives us nothing except orders which we are not able to… Read more »
” ‘I just wanted to beat the shite out of them and have a good laugh; it was nothing personal’ is a long way from the resentful kind of half-surly, half-deferential culture which has since flavoured so many of the North’s dealings with the South. ”
Jim Baxter on beating England at Wembley in 1967.
China on the prowl for gold any way they can get it.
http://www.reuters.com/article/2014/01/02/chinagoldinternational-idUSL2N0KC18N20140102
Credit union may be safer but my choice is to remove all funds and assets of any kind from the banking /credit union system
http://www.jsmineset.com/2013/06/09/jims-mailbox-1279/
Keep just what you need for day to day checking and all else out of the system. Pensions too. Buy land, hard assets, and PM coins and junk silver coin. Be your own banker.
http://www.roadtoroota.com/public/136.cfm
The case for silver
RTE stars, judges and rugby elite who owe Anglo millions
http://www.independent.ie/irish-news/rte-stars-judges-and-rugby-elite-who-owe-anglo-millions-29887499.html
Is this where we are headed?
http://henrymakow.com/2014/01/assault-on-wall-street.html
There is a theory that wealthy baby boomers are causing the housing crisis in Britain. However as we can tell from the comments below the following and similar articles there are boomers being reduced to destitution. From experience I am certain that the psychological impact of being poor in Britain today is far worse that it was under Maggie. ‘Where there is despair may we bring hope’. Margaret Thatcher. ——————————————————- No haven in Hackney: census 2011 reveals housing divide ‘The 2011 census reveals a widening divide in the housing market: more people are renting, while the cohort of homeowners is… Read more »
Dr Craig Paul Roberts
At a time when most Americans are running out of coping mechanisms, the US faces a possible financial collapse and a high rate of inflation from dollar depreciation as the Fed pours out newly created money in an effort to support the rigged financial markets. –
http://www.thedailybell.com/editorials/34896/Paul-Craig-Roberts-The-Case-of-the-Missing-Recovery/
Be careful there Paul, you might get lost in between the love / hate of Bonbon and Tony – comedy trios only work if the 3rd comedian is dumb
Stay Positive on Ireland “It Suits You”
http://positiveireland.org/
Hi all,
No one needs to listen to economists because denis says it all in a minute or two. Absolutely hilarious;
http://www.youtube.com/watch?v=aVlNZ3SIPbo
Preparing for default— Irish Style
http://preparefordefault.ie/?page_id=90
Be prepared to do what you can to protect yourself