Archive for March 16, 2017

Irish Economy Leads the Eurozone

Ireland has had it’s economic problems in past years, much of it documented in these pages. However Ireland’s recovery still continues and is showing the lead for other debt laden Eurozone countries to follow.  It’s a template which perhaps countries like Greece, Spain and Italy should look to follow.  For the fourth year the small republic has produced the highest growth rates of an country in the Eurozone and it looks likely to continue with some forecasts suggesting that 2017 will produce a growth percentage of nearly 3.5%.

Ireland instigated some pretty tough measure to pull itself out of the previous crisis and has been rewarded with rises in foreign investment and soaring levels of employment.  This has already filtered in to the general economy with strong retailing figures supporting the recovery.

Some economists are even predicting higher growth figures with mentions of 4% becoming more common.  Yet there is a huge black economic cloud circling which will restrict this growth and nobody quite knows by how much.

Of course, it’s Britain’s decision to leave the EU and as by far Ireland’s biggest trading partner the impact is bound to be large.  The general consensus is that the impact of Brexit will initially be fairly negative even to the extent that it is bound to cause some disruption and uncertainty.  However no-one is quite sure when this will happen and what the impact will be on the irish economy.

No other Eurozone member will be impacted as much as Ireland however and most economists are unclear of what the long term impacts will be.  The agricultural sector is the most important sector likely to be affected as the country’s farmers send over half their exports to the UK.  It is a large, convenient and essential market which is not easily replaced if it ends up falling into a mass of tariffs and controls.

Still much of this is pretty much out of the Irish government’s control and a a strong economy at least allows it the maximum possibilities or riding out any economic impact when the UK leaves.   As such Irish businessmen and politicians will be pleased that they can watch BBC in Ireland using a VPN to keep up with the developments.  It is likely that the UK government will also seek to restrict any changes made in the two countries trading agreements as well, the UK is likely to need a friend in Europe and difficulties with borders will only cause problems for both countries.

Australia’s Rising Debt

There are many countries who despite looking prosperous on the surface face huge risks to their economy.  One of those is Australia who some experts fear may face a huge economic slump if global events go against it.   The problem is once again that of debt, in a variety of forms – Australia has huge household debt, a record level of foreign debt and the potential risks of a massive housing bubble which has developed over the last ten years.

We live in a turbulent times for the global economy and it doesn’t take much to tip debt laden economies over the edge.  In modern times consumers are much more used to higher levels of consumer debt yet these levels are now at record highs, only the depression of the 1920s has there been the same figures.  In the short term this might be sustainable as long as the economy is growing sufficiently, some statistics report that Australia’s level of household debt as a proportion of household income stands at an average of 187%.

BBC IPlayer Australia

Anyone can see that this level puts the economy in a perilous position, any shocks can send families in a spiral of debt and repayment problems dragging the Australian economy with it.   High levels of sustained household debt rarely end well, and in fact they mirror all of the biggest Australian economic depressions of the last century.

It’s not just consumers who are drowning in debt either, Australia’s net foreign debt has been rising too and now stands at a record level of over 63% of Gross Domestic Product – the levels are eye watering for a relatively small economy at over $1 trillion.  Again this is probably sustainable in the short term but any global events, a government crisis or banking issue would make Australia extremely vulnerable.

Much of this is a direct result of Government fiscal policy with a huge amount of credit being expanded in all sectors of the society.  The housing bubble has been a consequence of this expansion of credit with housing credit now at a level of 95% of Australia’s GDP compared with about 20% in 1991.

Other levels of credit such as that directed towards business investment has not risen to such a level and has been fairly static.  Many Australians look across at Europe and North America and feel that they are far removed from any financial risks yet that is simply not the case.  You can sit and watch the BBC in Australia of course using a VPN yet in many ways these economies have some of these same risks yet on a lower level simply because of the size of their economies.

The levels of debt ranging from consumer to government represent a huge problem to the Australian economy however it seems that there is little political motivation to correct them.  Bringing down debt and raising taxes is never a popular move but sometimes it’s a prudent one!.

John Sessions