Ireland Economy in Crisis Tutor2u Economics February 2009

Irish economy under pressure 1 st 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 Ireland’s 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?

High growth lifted relative living standards

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

Overheated demand fuelled a BoP deficit

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)

Housing building has collapsed

And consumer sentiment has headed south

Unemployment has more than doubled

And recession creates a negative output gap

A deflationary depression is possible

Bond yields are rising as doubts grow about the solvency of the Irish economy

Audio-Visual on the Irish Economy