Brandon Keenan: focus on house price growth hides the real danger facing the economy

  • Brandon Keenan: focus on house price growth hides the real danger facing the economy
    Independent.t. E.
    Overheating? Economists, trying to be helpful, will tell you that during the business cycle, it is impossible to tell where it is at any given point in time. In the case of small, open, distorted economy like Ireland, it is really not possible.
    https://www.independent.ie/business/irish/brendan-keenan-focus-on-houseprice-hikes-obscures-the-real-dangers-facing-the-economy-37197600.html
    https://www.independent.ie/business/article37197599.ece/adce3/AUTOCROP/h342/2018-08-09_bus_43073751_I1.JPG

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Overheating? Economists, trying to be helpful, will tell you that during the business cycle, it is impossible to tell where it is at any given point in time. In the case of small, open, distorted economy like Ireland, it is really not possible.

Therefore, there is no answer to the current top-bar question: “overheating?” What can I say that if it is, but not the same as 2006. The differences are well known, but was neatly summed up last week the rating Agency DBRS.

The saloon-bar talk, as always, about real estate prices. While they grow in size, similar to that in the bubble, it from 60pc lower base. In addition, even if the house was overvalued in 2006, it makes the same price for the evaluation in 2018?

This is a good settlement, and in any case, prices in General did not back to the level of 12 years ago. In truth the housing market could not be more different from the one we had, which were characterized by rapid credit growth, increased household debt and too much building.

Now, the loan is bound by the rules of the Central Bank, households are saving, not borrowing and there is an acute shortage of construction. DBRS is in the most seeing no signs of a bubble in the property market. There is a housing problem – perhaps the crisis – but not a bubble.

It’s not the end of the issue. It may be hard to believe after zero, but it is possible for the economy from overheating, no matter what happens in the housing market. If the demand exceeds the supply of goods and services for too long, prices and wages will rise, ultimately forcing the excess growth and then some, and undermines the competitiveness of the way.

This is especially dangerous in the common currency area like the Eurozone, where the balance cannot be restored by devaluation. So much has happened in the Irish economy since 1979 that we tend to forget is a certain risk.

In the late 1990-ies, when the Celtic Tiger began to turn in the credit of an elephant would be more dangerous than they were, if not great, recent devaluation against the German mark in 1992.

In the nature of things, the loss of competitiveness by the costs, most likely occurs as a problem, perhaps more difficult to identify and fix, because without excessive credit or budget deficits. But probably not right now.

Still, we have to be somewhere in the invisible cycle and it is hardly possible on the down slope. To suggest that, if we passed the natural rush and Danny smiled, puzzled, go on up, where the supply constraints, especially labour, begin to spell danger.

These figures would suggest, but they are strange. The unemployment rate fell to 5 pieces, which is quite close to previous estimates of “full employment” before shortages drive up wages. The most gratifying is that long-term unemployment (without a job for more than a year) only 2pc in the first three months of the year.

However welcome these figures are, they indicate that there is a large pool of unused labour to call upon. Ireland has the pool of new entrants to the labour market and employment continues to increase by about 3pc a year, the majority of jobs for full-time employees. Despite this, there has been no General increase to last year, when they rose 1.7 PC.

As a Union sponsored Neri economic Institute argued in his review last week, such a rise seems to be long overdue and can hardly be called inflation in the economy is growing, as it seems.

Part of the automatic stabilizers in the economy that manage that cycle involves a rise in wages reduce the demand of enterprises in workers and help to slow. With Neri design salaries 3pc this year and next, and interesting data on the rise, some see the first signs that a correction may occur.

New CSO figures for the economy in 2017 was littered, as they should be, with different output. The estimate of GDP growth 7pcs completely discredited, and the conservative measures have found only 3pc.

This measure does not include rises in the cost of production of goods and services, so the “real” growth as usual, would be less than 3pc. Another useful measure of what is happening, Treasury returns were on target for the first half of the year. But tax revenues in the amount of 20 billion was based on fairly modest assumptions of growth of 4pc this year and the goals were on for most of the first half.

The autopilot can work is combining things, people, wondering and worrying. Housing prices may be in any saloon bar, but corporate tax revenues seems to be the theme of the place in the common room and brainstorming.

In its annual report last month, the national competitiveness Council, warned about the danger of future increases in costs of labor and emphasized successive Irish shortcomings in management and infrastructure, where the problem is, of course, is that they don’t change. The main competitive threat, the Council saw a decrease multinational activities in solving global and European tax changes.

There is a danger of a different kind. The big question is to what extent the government should try to prevent this from happening. Recent incentives to promote technological giants have become so strange that they left Ireland at a disadvantage when it comes to system security.

The irony is that these incentives, but may play an important role in the pursuit of entrepreneurs from our shores. While agreeing that may be the only way to prevent even more draconian invasion of the EU in the tax system.

It’s not particularly useful to call this question of competitiveness. The net impact of TNCs on Irish competitiveness is not clear. Along with GDP, their activity rocket the country to the global “low” indicators, but they displace domestic companies, when it comes to salaries and attracting qualified personnel and even housing.

It is true, of course, a financial issue, but where the threat may also provide an opportunity. Even if the Commission abandoned its tax plans, it is impossible to believe that the Corporation tax revenues may continue at the present €6 billion a year – more than double a few years ago.

Therefore, there is every good reason to cancel half of that, say, so that public finances do not depend on its continuation. He will Eclipse meager savings for a rainy day, but since it would take several budgets to get it out of the public finances, it is already too late for the crisis of the British exit from the EU.

If this can be avoided, it is not too late for such remedies to help in the post-British exit from the EU the world at the end of the 2020-ies, when the final deal was made and the perestroika years ahead.

At least the money could be used for a well-matched, one-time capital investment, whatever the result of the increase in current expenditures, for example, more teachers are properly accounted for in the current budget. That may not slow down the economy, but it would make it safer in the long run.

As it is now burdened, it looks brutally exposed.

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