Every which way but loose. The economy speaks….

irish property bubbleThe Irish economy is in a downturn, if you don’t know this then you have already died and either gone to heaven (where the boom is still on) or to hell (in which you are living halfway through 2009 already).

The factors involved in the Irish economic slowdown are multi-faceted, on one hand there was the property boom, then there was the corresponding financial expansion, as well as a strong dosage of greed thrown in by Joe Public. All of this was the foundation for the explosive cocktail we will one day look back upon and refer to as the ‘credit crunch’.

Mortgages are harder to place with lenders, the lenders themselves don’t have the liquidity to keep giving out money, that is the downside of fractional reserve banking. Yesterdays ESRI report showed that property, construction, and lending are all down at serious lows for the same period last year. The forecast for 2007 was to see total lending rise by €25 billion, figures for the first quarter show that only 4.4 billion was drawn, assuming the slow down continues that would give us 17.2 billion for the year, however (and you heard it here first) I don’t believe that total lending will reach the 15 billion mark for 20008 because confidence or the markets will not repair itself in such a short time and the lasting effect will be credit aversion for many people.

us market recessionThe stock market is down, the ISEQ impressively so, deposits seem to be the only safe bet until you realise that the deposit guarantee scheme doesn’t have enough money in it to cover even a portion of the smallest bank in the nation.

This is a confounding situation, on one hand there is contraction and a reduction in money supply, but on the other there is inflation, which is being caused by headline inflation in energy and housing costs. Mortgage interest rates have shot up (but not in connection with, or at least in relation to the ECB) and unemployment is growing. We are currently in a situation that is ripe for stagflation, in fact, that might be the buzz word of H2 in 2008, if inflation does not come under control then we will have a reducing or stagnant GDP coupled with inflation and that is one hangover that will take a long long time to forget!

mortgage panicLax monetary policy is a thing of the past is coming back to haunt us, and for that reason you had best be prepared (here’s the commercial plug): Get a financial check-up, talk to your advisor, don’t go into what is surely going to be a difficult time without having at least some idea of your own financial landscape and how it looks, this is not something that should scare you, instead you should feel liberated at having taken a pro-active step towards securing your future, we might even throw in one of our special ‘I survived the credit crunch’ t-shirts! Call one of our advisors for a full check up today.

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