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Jim Power - Chief Economist
 

Jim Power - Chief Economist

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Enterprising Donegal Business Week 2011

Enterprising Donegal Business Week 2011

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    Jim Power - Chief Economist Jim Power - Chief Economist Presentation Transcript

    • ‘ REALISING THE FULL POTENTIAL OF SMALL BUSINESS FOR ENTERPRISING DONEGAL BUSINESS WEEK 2011 Jim Power March 7th 2011
    • GLOBAL ECONOMIC BACKDROP
      • Global economic momentum solid
      • Developing economies showing strong momentum, particularly China
      • US – reasonable recovery, issues with consumer & fiscal deficit, but getting better
      • Europe – Germany doing very well, but sovereign debt issues casting a shadow
      • UK – reasonable growth momentum- but fiscal retrenchment now beginning to impact
      • Inflation fears growing in Euro Zone & UK ~ interest rates to rise
      • Risks are Fiscal Consolidation, Oil Prices & Banking Problems
    • GLOBAL GROWTH FORECASTS Source: Capital Economics 2009 2010 2011f 2011f World -2.0% 3.4% 2.8% 2.3% G7 -3.7% 2.6% 2.0% 1.4% Euro Zone -4.0% 1.7% 1.0% 0.5% Japan -6.3% 4.2% 1.0% 1.0% UK -4.9% 1.7% 1.5% 1.5% China 9.2% 10.3% 9.0% 8.5% India 7.4% 9.2% 8.4% 8.6% Australia 1.3% 3.3% 3.8% 3.6% United States -2.6% 2.9% 3.0% 2.0%
    • OIL PRICES (BRENT CRUDE)
    • IRELAND – WHERE IS THE ECONOMY TODAY?
      • Q1-Q3 2010 GDP -1.2% GNP -3.7%, but both expanded in Q3
      • Retail Sales Volume +0.9%, Value -2.0% (2010)
      • Car Sales +55% in 2010 so Retail Sales ex-Motor Trade Value -4.3%, Volume -1.8% ~ weak January as USC hit
      • Manufacturing Output 2010 +8.4%; Modern +11.1%, Traditional +2.0%
      • Merchandise Exports +6.9% Imports +0.6% (2010)
      • Credit availability very difficult
      • Labour market conditions difficult
      • Public finance crisis
      • But Indications that economy is stabilising after dramatic fall
    • MERCHANDISE EXPORTS (VALUE) Annual Growth (Jan-Nov 2010) Food & Live Animals +11.0% Beverages & Tobacco +11.1% Chemicals & Related Products +9.1% -Medical & Pharma Products - Organic Chemicals +14.4% +7.8% Machinery & Transport Equipment -20.7% -Office Machines & data Processing -30.9% Dairy +27.1% Meat & Meat Products +9.3% Total +5.8%
    • STATUS OF IRELAND TODAY
      • Emerging from deepest recession in our history
      • Public finance crisis
      • Banking crisis
      • Employment crisis
      • Domestic demand subdued – business investment weak, consumer confidence very fragile
      • Exports growing strongly
      • Manufacturing output growing strongly
      • External intervention was inevitable and ultimately positive
      • Challenging road ahead
    • PERSONAL CREDIT (YOY)
    • NON-FINANCIAL CORPORATE SECTOR CREDIT (YOY)
    • REAL CONSUMPTION OF GOODS & SERVICES
    • GROWTH IN REAL DISPOSABLE INCOMES
    • PRESSURE ON THE IRISH CONSUMER
      • Difficult labour market
      • Wage cuts
      • Sharp increase in personal taxation
      • Cutbacks in government expenditure
      • Destruction of personal wealth
      • Massive loss of confidence but
      • Sharp jump in precautionary savings
      • Lots of hard work before consumer confidence will recover
      • Consumers cutting back on discretionary spending
    • CONSUMER CONFIDENCE (ESRI/KBC)
    • WHAT IRELAND NEEDS TO DO
      • Restructuring of public finances has to continue – Government cannot succumb to pressures – need to create sustainable public finances
      • Public sector needs to improve effectiveness
      • Banking crisis has to be sorted – will be slow & expensive – but little choice – debate about new banking model needed
      • Competitiveness agenda has to be pushed onto Dail agenda
      • Personal debt issues will need to be addressed – but no easy solution
      • Success cannot be regarded as a sin
      • Growth is the only way to solve various crises, but painful medicine has to be taken first
    • THE ECONOMIC REALITIES
      • Despite Government efforts the challenge is immense
      • € 190 bln national debt by 2014, €9 bln interest bill ?
      • Fiscal correction €30 bln 2008-2014
      • Is this manageable?
      • Are there options?
      • Populist notions gaining currency
      • Ireland will have to proceed with EU agreement
      • Unilateral approach not an option
      • EU will have to respond more forcefully to Euro Zone crisis
    • PRIORITIES FOR FIRST 100 DAYS
      • Provide forceful leadership
      • Appoint strong cabinet based on ability rather than politics
      • Change ministerial profile
      • Engage constructively with Europe on Irish realities
      • Commitment to fiscal objectives
      • Concerted effort to repair tarnished international reputation
    • REASONS TO BE CHEERFUL?
      • International background much better
      • High level of personal savings – precautionary savings driven by lack of confidence
      • Recession has been used to make the economy more competitive – but there is still a long distance to travel
      • Still many ‘real’ entrepreneurs and risk takers in Ireland – we must not drive them out
      • Reform of way in which public services are delivered
      • Opportunities presented by a decent crisis should not be wasted
    • SOME PERSPECTIVES ON BANKING
      • Model is dysfunctional – what sort of model should we aspire to?
      • Depositor confidence shattered
      • Full extent of black hole not yet obvious
      • Sale of AIB & BOI to foreign bank – if possible?
      • Creation of third force from the rest
      • Need for ICC type institution?
      • Profit maximisation as the key driver?
      • Incentivisation structures?
    • SECTORAL CONSIDERATIONS
      • Export sectors holding up well
      • Construction industry will remain weak ~ but long-term requirements exist
      • Financial services industry in serious flux
      • Hotel sector – serious over capacity
      • Retail sector – over capacity/difficult consumer outlook
      • Agri-food has potential, but challenging environment
      • Professional services offer potential
      • Personal services offer potential
      • Alternative energy has potential
      • FDI model under pressure
    • BARRIERS TO ENTREPRENEURSHIP
      • Cultural issues
      • Red tape & regulatory burden ~ need to achieve quality regulation & reduce costs of compliance
      • VAT regime
      • State costs – commercial rates, local authority charges, cost of employment
      • Other business costs – professional fees, energy, commercial rents, IT costs, insurance
      • Credit
      • Any Questions?