It's important at various times in our roller-coaster economy (a misnomer though, as it also implies upward motions), it is important to catch one's breath and observe the situation in more detail. This allows us to make an assessment of the wider economy and make a calculated perspective of the road ahead.
Accordingly, my observation for the next 12 months is exceptionally negative, and I will outline the reasons why over the next few paragraphs. I would welcome comments and opinion that agree and hopefully, disagree with my findings.
1. The twin-track economy. We have two economies in Ireland. We have one that is a mostly export driven one that specialises in products and services that people actually need. This economy is doing quite well as a comparison to the domestic one, but only on the basis that the wider global economy continues to show growth. This economy of course is what the government is counting on to raise our near-dead economic corpse off its death-bed in order to service our enormous tax burden. The fate of this economy is unknown purely because it is completely out of our hands. At any stage, the winds of ill-fortune may ensure a double-dip depression in the US, and thus the rest of the world. The only thing to be positive about is that the doom-sayers have been advocating this for the last two years with nothing to show for it......so far.
2. The narrow gauge track. This is our domestic economy, it's what we sell and service to ourselves and boy, is it screwed. And it's screwed for a number of reasons...
3. First and primarily there is a continuing lack of confidence out there in consumer-land who are hoarding on to what gains they have in what banks or deposit based financial institutions that are left. This lack of confidence is perfectly understandable, but the main driving factor is that the consumer cannot see any end to the recession in sight, particularly with interest rate hikes forecast through the ECB.
4. Secondly we have a lack of credit in the marketplace. So from an Irish business perspective we have businesses that cannot access finance to tie them over the rough times as the banks simply don't have any money. Furthermore, banks have been actively decreasing their credit facilities in terms of reducing overdrafts or calling in existing loans. Now, in times of recession this is no bad thing as it weeds out unviable and unsustainable businesses that can only succeed in times of bubble economies. What is different now however, is that companies which are perfectly viable and sustainable are going to wall due to lack of credit and an inability to get paid by their debtors. In short, this weeding process has now gone too far, and the longer it goes on, the more and unrepairable the damage becomes.
5. Thirdly we now have serious upward pressures in terms of inflation, particularly for the manufacturing and service industries. Let me give you a simple example. At the moment we have a transport companies hammering on our doors looking to get our modest 32 county transport business. They are continually under-cutting themselves in terms of a 32 county pallet rate because they know our business is sound and they will get paid. In normal times this would be a welcome development, in times when raw costs such as diesel prices are going through the roof it's pretty clear this is not competition, it's desperation. It will literally be last man standing. And for every fuel increase there is every other kind of commodity increase you can think of which brings us to...
6. The slow and painful death of the Irish suppliers into the retail sector. What we have here is a big squeeze. From the topside, Irish manufacturers for the domestic market are facing enormous pressures on prices because of commodity increases in raw materials, increased energy costs and then a lack of credit to pay for them. They are selling these products into multiples that are looking for price reductions on the basis that their own customers are looking for value for money in a recession. In this impossible scenario something has got to give, and that something is not going to be the multiple or the consumer. So what we have here is the slow bleeding out of Irish manufacturers to be replaced by foreign imports, and this is on the basis that they are cheaper due to reduced manufacturing costs owing to scale and access to finance. A quick win for the Irish consumer, and a slow death for the domestic economy. You will see this as more and more business goes 'own brand' and I can guarantee you that 'own brand' with the exception of meats etc won't be Irish.
Therefore my supposition is that a lot of viable Irish businesses are about to hit the wall in the next 12 months unless the government take drastic steps to ameliorate the situation. This will become apparent as our unemployment rates continue to rise and our net emigration increases. Accordingly, the tax burden on those that remain, and remain employed becomes greater and more intolerant.
In the words of the film 'Something's Gotta Give'
