Ireland: government blew the boom
As Ireland faces a recession after a fifteen-year property boom, it has come to light that the government have been caught out and doesn’t have the enough funds to support the economy now that the boom has gone bust. The Irish Independent chronicles a research piece from the Economic and Social Research Institute, which is somewhat downbeat about the Irish economy over the near-term.
In a devastating economic analysis, the Economic and Social Research Institute (ESRI) forecast the first recession in the Irish economy since 1983. Outlining gloomy prospects for the economy over the next few years, the ESRI said output of goods and services will fall this year — an Irish definition of recession.
Emigration will return, with a 20,000 outflow next year needed to stop unemployment going through 8pc, it said.
Meanwhile, public finances will plunge into the red, and next year will burst through EU limits on borrowing, sparking potential sanctions, according to the influential ESRI analysis.
The main culprit is still the collapse in house construction, which has plunged from 75,000 units last year to just 30,000 next year. This fall is so serious, it wipes out all the growth in the rest of the economy.
The analysis of the Irish government’s being caught unawares is not particularly unique. If you look at any central government or state or local government in former boom locales, the problem is the same. That’s not to say that the government should have been prepared for the next downturn.
But, I do expect many governments to go deeply into the red as they deal with the revenue shortfalls associated with their residential property busts. Some local government in the U.S. will undoubetdly go bust, due to the same circumstances — Vallejo, California being the first to declare bankruptcy.
In Spain, I wrote last month that:
Spanish municipalities are being hit hard due to the tax revenue shortfalls emanating from the effects of the Spanish property market crash. The two local governments most affected have been Madrid and Catalonia.
–Credit Writedowns, 19 May 2008
The situations in Ireland, Vallejo, Madrid and Catalonia demonstrate how hooked on the property boom we all had become. It’s not specific to one city or country.
Now that the boom has come to an end, it all seems very suddden and we are unprepared for the retrenchment required.