Davy cuts 2009 growth forecast to 2%


I have to say, finally an accurate statement. Why an earth did it take so long for this to happen. Everyone here knew this was the case a long time ago…

Thats a pretty grim picture they have painted there but it could be worse than that too.

Sorry - didn’t see your post !

even the ostriches (spelling!!) can’t ignore this one.

The silence of the likes of Comical Austin and Desperate Dan is deafening at this stage

They are also forecasting a 20% drop in commercial property prices:

finfacts.ie/irishfinancenews … 3726.shtml

On the related stories links on RTE site, this gem from 8 April 2008 (not a million years ago):

:smiling_imp: :imp: :smiling_imp: :imp: :smiling_imp: :confused:


Anyone heard anything from Ronnie lately :question:

Well it’s goodnight from him… :laughing:

The fear of looking like idiots has finally won out over the fear of pissing off their VI clients.

Its not as though these venal tossers have become objective commentators or anything. Just self-preservation.

Davy hot of the press with last year’s news.

Drowning men will grasp at straws, that’s the type of news that sellers cling to to avoid having to drop their price. Estate agents are not the most trustworthy characters you meet in business in general, so imagine when they advise sellers they need to drop their price to sell, the seller ‘will know that prices have almost bottomed out and will turn around at the end of the year’, because they heard a leading economist on the RTE say so and if they hold out they won’t have to sell ‘for less that their property is worth’.

One of these days the EA’s are going to explode and tell the property economist to STFU.

Here is the current situation:

  • There are today more properties for sale across the country than there are buyers.
  • The banks have tightened up lending criteria significantly, there are no more 100% mortgages, you need 20% down to buy a two bed apartment in Dublin, and up to 30% outside Dublin.
  • The market for investors is dead as there is no more section 23. (BTW That Hooke & McDonald section 23 banner on Parnell Street is looking a bit sad and neglected)
  • All the buyers who wanted to, got on the ladder during to boom. The market is now left with to paraphrase Carlos Kelly, ‘the scabby buyers’.
  • The subprime market is dead.
  • Renting is still cheaper than paying mortgage interest in the most desirable locations.
  • Rental supply is currently going ballistic.
  • The cost of ownership is still rising + get ready for water service charges.
  • Emigration is back.
  • Unemployment is up.
  • The spring dead cat bounce is over in Dublin, and Spring never came to the rest of the country.
  • The IBF data showing the number of mortgage draw downs shows a market in decline.

Bottom line the economists are increasingly becoming a hindrance.

Did anyone read the report? A few things stood out as I skimmed through it this morning.

They reproduced the Daftwatch graph ( complete with ECB interet rate levels). The made reference to the increased supply of residential property for sale but made no attempt to estimate the total number of empties.

It will not be until late this year that non-performing residential mortgage loans will start to become an issue (given a typical two year lag between the top of the market and the realisation of bad debts).

Banks were reluctant to strong arm buidlers into repaying loans if it would lead to liquidity problems for said builder. It was in everyone’s interest to try and ‘muddle through’. This explains both the price drops and the decision by many developers to rent out unsold units.

Retail space increased by 350% between 2003 and 2007 and there is a lot more due to come on stream. By 2009 the total amount of retail space (as measured by square feet) wil be 550% bigger than the 2003 figure.

Davy on the Irish economy
davy.ie/content/pubarticles/ … 080527.pdf [adobe acrobat required]

RTE Broker reports

I , for one, am watching out carefully for Ronnies next pronouncement .

He is friendly with at least one regular around here but its his choice as to whether he comes up with a forecast at considerable variance with reality …like that april pronouncement and his 2008 outturn prediction around the turn of the year.

Final warning Ronnie, 2pack is watching you . It would not be a wise career move to make yourself part of an unholy trinity with Dan and Austin !!!


No, no - this negativity won’t do at all. Let’s Sindo this up a bit, shall we?

Sindo stylee

AFAIR Ronnie had an article in last weekend’s Sunday Times (Oirish edition - not online AFAIK). It was in the place where Kiberd’s article used to be. I can’t remember much of the detail but it wasn’t overtly optimistic. More along the newly familiar lines of spelling out all the potential risks, but then inexplicibaly coming to the conclusion that Ireland will somehow get through the current downturn and things will pick up again in 2009/late 2009/first half of 2010.

As an aside, Fintan O’Toole had an article in yesterdays Irish Times savaging Marc Coleman’s analysis of Fintan’s take on public service spending levels.

Thats what it boils down to. The penny has dropped with Jim Power recently and now this lot have kopped on that if they wish to retain any semblance of credibility in the not too distant future they had better start calling things more realistically.

As for the Sindo and the rest of the populist rags which manage the flow of information, once the worm turns in earnest, they will be baying for blood, looking for retribution on behalf of their hard done by readership. Bernard McNamara’s step into the limelight last week bore all the hallmarks of a man who is well aware of this. When before have any of the boom time heroes ever felt the need to explain themselves? Pretty soon there are likely to be a lot of angry people about, á la the Eircom fiasco.

As for the report itself, is it not being a bit optimistic? Is a target of 2% growth next year in an economy which would appear to be slipping into reverse, a realistic proposition?

20% price drop for commercial property?

Based on assumption:

  1. Five year swap rate to fall to 4% (from 4.6% at 1Q08)
  2. Margin reuired by lenders over swap rate 1.5%
  3. Rental yields need to rise to funding costs to reach equilibrum.
  4. Rents will rise in line with nominal growth in the economy

Funding cost equals 4% + 1.5% equals 5.5%
Rental yields in 1Q08 were 4.23%

1.00 / 0.0423 equals 23.64 times rent
1.00 / 0.055 equals 18.18 times rent

Price drop is a little over 20% according to Davys, actually 23.1%


  1. Five year swap rates at 4%: (I think this tallies with the more optimisticviews on interest rate outlook) currently five year swap rate is 4.67%
  2. Margin required by lenders to say the same at 1.5%: Don’t think so. I would plug in 2.0% myself.
  3. Property Buyers may want rental yields to exceed funding costs, (extra risk premium). Lets assume they don’t
  4. A lot of spare commercial capacity to come onto market over next 18 months, but lets assume they do rise in line with nominal growth in economy.

Revised Funding cost is 4.67% + 2.00% equals 6.67%
1.00 / 0.0667 equals 14.99 times rent
Implies 36.6% price drop, my guess is 40%+

I read today that the american economy grew in the first quarter, and all the main european economies grew in the first quarter, so are there any countries that are officially in recession? how likely is it (50/50? 75/25? 90/10?) and when will we know if ireland is? could ireland be the only country to go into recession?