Ireland Economy in Crisis

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Ireland Economy in Crisis

• Tutor2u Economics
• February 2009

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Irish economy under pressure

• 1st Euro Area country to enter recession
• High share of exports to GDP exposed to global
  downturn
• Strong Euro damaging trade prospects e.g. with
  the UK
• Twin crisis banking and government finances
• Bank of Ireland and Allied Irish Bank have
  required bail outs nationalisation of Anglo
  Irish Bank
• Soaring budget deficit may cause Irelands credit
  rating to be downgraded
• Prospect of sharp rise in taxes to pay for the
  deficit
• Unemployment now 9.2 of labour force
• Industrial production declining by 12 pa
• House prices started falling in March 2007 and
  have fallen in every month since
• Economy on the brink of consumer price deflation
• Will Ireland leave the Euro Area?
• Or will it be able to use its own sovereign
  wealth fund to advantage?

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High growth lifted relative living standards
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An economic boom that went sour
Ireland's decade-long economic boom came to a
crashing halt last year after the country's
housing bubble burst in the midst of global
financial turmoil, while the economy took a
further hit from a string of bank scandals in
recent months. Source Reuters
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Overheated demand fuelled a BoP deficit
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The property bubble has burst
In 2006, Ireland (population 4.2 million) built
88,000 houses, compared with 150,000 in the UK
(population 60 million). At one point, a fifth of
the workforce, swelled by tens of thousands of
immigrants, worked in construction. Ireland now
has up to 350,000 empty homes more than its
entire private rental market many of them
simply abandoned as builders went bust. House
prices are expected to fall by 80 per cent.
(Telegraph)
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Housing building has collapsed
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And consumer sentiment has headed south
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Unemployment has more than doubled
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And recession creates a negative output gap
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A deflationary depression is possible
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Bond yields are rising as doubts grow about the
solvency of the Irish economy
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Audio-Visual on the Irish Economy