RECOVERY WILL BE DIFFICULT - NIB - Much of the economic information last week was devoted to pointing out how deep the recession we are in actually is. But analysts were also keen to point out that the pace of the economic meltdown is slowing. The week starts with an outlook from bank economist Dr Ronnie O'Toole of National Irish Bank. The headline over his research is: 'Dire recession nears the end: difficult recovery to begin'.
His big number is €30 billion, which Dr O'Toole says is the amount of cash taken out of the Irish economy because of the collapse in spending on housing and consumer goods and less spending by businesses. He says there are two key sources to an eventual economic recovery - a pick up in demand for Irish produce as the global economy recovers and a transformation of what are now very high levels of consumer saving into consumer spending around the turn of the new year.
Dr Ronnie O'Toole says the economic recovery is going to take place in a number of different phases. He says the export sector, which is remaining remarkably resilient, should start to improve as the global situation improves. Other areas, such as consumer spending, should start to bottom out over the course of this year and perhaps start to rise slowly next year. However other sectors, including construction and Government spending, are going to remain weak for a number of years.
The economist says this recession is 'extraordinary' and he adds that he has seen a remarkable increase in the savings rate. He says the private sector, at the height of the boom, was borrowing around €10 billion a year, but now it is going to be a net saver of €20 billion. He says this is pulling €30 billion a year from the economy but as soon as people start to feel a little bit more economically confident, they will start to go back into the shops a little bit more and start thinking about housing once again.
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SMALL BUSINESS SEEING CREDIT CRUNCH CONDITIONS WORSEN - The reality facing many businesses now is just how difficult it is to get a loan from a bank. The 35 County and City Enterprise Boards support companies with fewer than 10 employees and their research carried amongst more than 1,000 companies finds that 47% of very small firms can not get loans or overdrafts. Without cashflow, the enterprise boards predicts many good businesses will be forced to close. Among the banks, the survey points to a reduced number of businesses using AIB and an increase in the number using Permanent TSB.
The latest CEB research was carried out at the end of June and Chairman Michael Tunney says the most critical thing it found was that 96% of businesses who responded indicated that the availability of credit to them was either the same or worse than it was six months ago. Over 56% of participants reported restrictions in relation to their bank overdrafts. Mr Tunney also says that 76% of them reported an increase in 'debtor' days as their customers tried to hold on to their cash for as long as possible. As a result, working capital is a real issue for most small businesses at the moment.
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MORNING BRIEFS -The BBC is reporting that the Serious Fraud Office in Britain is to investigate the 2005 collapse of MG Rover and the loss of 6,000 jobs.
*** The Financial Times says the US and Japan will commit $3-4 billion each in what is being termed a 'food security initiative' when the G8 Nations meet in Italy from Wednesday of this week. The idea is to spend $12 billion on farming investments in developing countries.
*** On the currency markets, the euro is worth $1.3978 and 85.82 pence sterling.
