Some green shoots in Ireland?

For the rest of 2010 Crédito y Caución expects to see improvements in GDP growth, but accompanied by an increase in corporate insolvencies, reaching around 1,800 cases.
Analisis Credito y Caución
Madrid - 23-ago-2010

At last there are some slight signs that Ireland's economic recovery is under way. According to the Central Statistics Office [CSO], in Q1 of 2010, while GDP decreased year-on-year [-0.7%], it increased by 2.7% on the previous quarter. The main changes since Q1 2009 are that capital investment has declined 30%, while consumer spending is just short of 1% lower. Net exports continued their surge, increasing 2,609 million year-on-year in the first quarter of this year. Car sales to June 2010 were slightly below 68,000, a good performance - 21,000 higher than in the same period in 2009 - but, of course, some of this increase can be attributed to the scrappage scheme introduced earlier this year.

However, retail in general remains under pressure, with rent and leases proving onerous for retailers as footfall decreases. Excluding car sales, retail sales in Q1 of 2010 were 2.9% down on the same period last year. Construction, once the backbone of the economy, continues to show signs of decline.

Unemployment rose 5,800 in June 2010, bringing the total out of work to 444,900: 13.4% of the workforce. While this makes for depressing reading, the year-on-year rate of increase is slowing: in the 12 months to June the increase was 9%, compared to 11.1% for the 12 months to May.

Insolvencies are still rising. In the first six months of 2010 they were up 27% year-on-year and have already exceeded the total for 2008. Hardest hit were companies operating in the construction, services, hospitality and retail sectors, which collectively accounted for almost 75% of the total so far this year. Construction alone accounted for almost 30% of the failures.

The increase in the number of receiverships is worth noting. Up to June, 118 companies have gone into receivership this year - a rise of 174% on the same period in 2009 and not far short of the 124 for the total of 2008. This suggests that banks are adopting stricter loan collection methods in an effort to improve their own situation.

In contrast, 18,200 new entities [limited companies and business names] were registered with the Companies Registration Office in the six months to June, 9.6% up on the 16.599 registered in the same period last year. These figures indicate that people are still willing to invest and start up businesses despite Irelands economic difficulties.

A weaker euro might help Irish exports

For the rest of 2010 Crédito y Caución expects to see improvements in GDP growth, but still accompanied by a small increase in unemployment and with corporate insolvencies reaching around 1,800 cases [1,406 in 2009]. In May 2010, the Expected Default Frequency [EDF] indicator for Ireland stood at 62 basis points: 205 points lower than at its peak in January 2009. That said, it was still 40 basis points higher than in May 2008, i.e. before the credit crisis took hold.

With domestic demand expected to remain flat for the time being, any recovery is likely to be driven by exports. The relative weakness of the euro against both the US $ and the British £ should assist the Irish balance of payments, as large volumes of trade - chemicals, business services, technology and food in particular - go to the US and UK.

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