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Thursday, 20 March 2008

"Ireland's Luck Is Running Out" Business Week

I came accross a report in Business Week Magazine about the Celtic Tiger...

"Once the envy of Europe, Ireland's economy is set to grow this year at it slowest rate in two decades. The collapse of a housing bubble coupled with the strong euro is raising unemployment and slowing growth, reducing the Celtic Tiger's roar to a whimper. And the news keeps getting worse. More than $5.5 billion was wiped off the value of Irish stocks on Mar. 17, in what commentators have dubbed the "St. Patrick's Day massacre."

"The Irish economy is heading into recession," says Alan Ahearne, an economist at the National University of Ireland, Galway, and a former senior economist at the U.S. Federal Reserve...

It's not just about the global credit crunch, weak banks, or bearish stock markets. Rather, Ireland is at the tail end of a housing- and consumer-fueled boom—similar to that of the U.S.—and finds itself at the mercy of global trends such as inflation, wage-scale gaps, and increased competition from emerging economies...

Ireland enjoyed the biggest property boom ever recorded, Ahearne says, with average house prices up more than 300% in the past decade, to more than $490,000 at the beginning of last year. Since then, though, both home prices and residential construction have fallen off sharply. The building slump has led many construction firms, which are among the country's biggest employers, to slash jobs. Ireland's housing sector as a percentage of gross domestic product is three times bigger than that of the U.S., so the downturn, Ahearne says, is having a much bigger impact on the broader economy.

At the same time, the cost of living and doing business is soaring. The headline inflation rate is hovering near 5%, while basic consumer inflation is 3.5% vs. 3.3% for the euro zone as a whole. And the euro's rise against the dollar and the pound sterling has made Ireland much less competitive in its two main export markets."


All this combined with rising unemployment as the construction industry stalls and major multinational companies cut back of staff in Ireland and...

"there are real fears that if the European Commission succeeds at harmonizing corporate tax rates across Europe, Ireland's competitiveness would be further eroded."

Ireland's luck is definately running out - fast!!!

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