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gruffydd

Bank Of Ireland Chief Economist Predicts

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Bank of Ireland Chief Economist Predicts Higher Interest Rates on Back of Global Economic Boom

28-Feb-06

The global economy shows no signs of slowing and as a result interest rates are likely to rise further in March, according to the latest Bank of Ireland Global Markets economic research bulletin.

Writing in this month's Economic Bulletin which was published today (28 February 2006) Dr. Dan McLaughlin, Chief Economist, Bank of Ireland Group said the world economy grew at an annual rate of 4.6% in the fourth quarter which is substantially above the long term average of 3.6%, implying further upward pressure on capacity and commodity prices.

"If anything, the pace of activity looks set to accelerate in the first half of 2006. This certainly appears to be the case in the US, where growth slowed in the final quarter of 2005 but looks set to rebound strongly, judging by the trend in industrial production and consumer spending. The latter soared in January, no doubt helped by the buoyant labour market, which pushed the unemployment rate to a five-year low of 4.7%. Moreover, the one area of the US economy that did appear to be slowing - the housing market - may have bounced back sharply in January, judging by housing starts which rose to a thirty-three year high", said Dr. Dan McLaughlin.

According to Dr. Dan McLaughlin the consequence of this is that the Federal Reserve is concerned that the pace of growth will push inflation higher, and has warned the market that rates may need to rise further.

"Short rates in the US are now expected by the market to peak at 5%, from the current 4.5%. In Asia, too, growth has remained extremely strong, notably in China and in Japan, with the latter recording annual growth of 4.2% in Q4", said Dr. Dan McLaughlin.

He also indicated that a range of sentiment and confidence indicators are pointing to a much stronger 2006 for the Euro area, which are likely to push rates higher.

"The Euro area had proved an exception to the buoyant global growth story, but positive signals are very apparent in Germany, where one of the most closely watched business climate indicators - the IFO survey - reached a five-year high in January. This new-found optimism on eurozone growth prospects has influenced the ECB, which appears less concerned about the downside risks to growth and more concerned about the risks to inflation. The dreaded 'vigilance' word has also reappeared in the ECB rhetoric, which normally signals an imminent tightening move", said Dr. Dan McLauglhin.

He concluded that as a result of this positive global economic backdrop "March may well prove a bad month for borrowers in both euros and dollars with the ECB moving the repo rate to 2.5% early in the month and the Fed pushing up short rates to 4.75% on the 28th. Moreover, unless the global economy starts to slow down the rate risks are all to the upside."

Ends

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Higher IR in Ireland will be bad news for those who bought at the top of the market as it may spell instant negative equity. However, the buying momentum is still very strong and an increase of .25% from the ECB will probably be ignored. It took a dozen increases for Al to stop HPI in the US. My guess is that Ireland will start to crack at the end of 2006 going into sharp correction a year after the UK, in 2007.

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I stopped taking seriously anyone in Ireland with words "economist" or "bank" or "real estate" in their title. I'm loath to sound like a conspiracy theorist, but I no see two-sided analysis here. I simply do not trust what passes for analysis here.

Most of my investment returns have been made in two, short, separate and v.different periods. Yes, that's MOST i.e. >50% of my roi for the last 10-15yrs. Maybe I was lucky, but neither time would I have been as successful had I listened to the likes of Dr. Dan, who's no doubt covering his @ss as we speak. Another econo-babbler-apologist, Austin Hughes or something was on the radio yesterday evening. he mentioned something about Trichets rates amounting to "slow Chinese water torture". I almost choked when I heard this-- did he realise what he'd said? The event horizon will be upon us when the marginal buyer registers that what is happening is a slow, unending tightening of the noose... realisation of that reality, NOT the actual rates themselves will precipate a crisis....

I think the event horizon is much closer than we think.

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I stopped taking seriously anyone in Ireland with words "economist" or "bank" or "real estate" in their title. I'm loath to sound like a conspiracy theorist, but I no see two-sided analysis here. I simply do not trust what passes for analysis here.

Most of my investment returns have been made in two, short, separate and v.different periods. Yes, that's MOST i.e. >50% of my roi for the last 10-15yrs. Maybe I was lucky, but neither time would I have been as successful had I listened to the likes of Dr. Dan, who's no doubt covering his @ss as we speak. Another econo-babbler-apologist, Austin Hughes or something was on the radio yesterday evening. he mentioned something about Trichets rates amounting to "slow Chinese water torture". I almost choked when I heard this-- did he realise what he'd said? The event horizon will be upon us when the marginal buyer registers that what is happening is a slow, unending tightening of the noose... realisation of that reality, NOT the actual rates themselves will precipate a crisis....

I think the event horizon is much closer than we think.

I think you've hit on something important here, which is a key difference between the UK and Irish market. In the UK there is a prevailing feeling that because the country can control its fiscal policy, "they just won't let a crash happen".

Irish public opinion has not really confronted the fact that as interest rates really start to bite, not only will there be no let up, things could get much worse, because ECB loyalties lie elsewhere.

Edited by Flash

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Guest horace

`Irish public opinion has not really confronted the fact that as interest rates really start to bite, not only will there be no let up, things could get much worse, because ECB loyalties lie elsewhere.`

I wonder if the Republic`s property purchasers` will then want to opt out of the Euro?

Perhaps Italy may have a reluctant ally. Strange bed fellows indeed.

horace :unsure:

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`Irish public opinion has not really confronted the fact that as interest rates really start to bite, not only will there be no let up, things could get much worse, because ECB loyalties lie elsewhere.`

I wonder if the Republic`s property purchasers` will then want to opt out of the Euro?

Perhaps Italy may have a reluctant ally. Strange bed fellows indeed.

horace :unsure:

If Ireland opts out of the Euro to save house owners I will wash my hands of this country. I'll be on the first plane to Oz.

Mind you I don't think even that can save it the bubble in the long run.

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Surely Ireland can't just pull out of the Euro when things go a little sour...

The press in Ireland all have vested interests. They will do anything to prop up the market.

They must all be on the Fianna Fail payroll - "keep the sentiment positive just until we are re-elected....we'll worry about things then."

- oh and look, what a coincidence the SSIA scheme will mature in perfect synch - that will keep the consumer cash flowing until Bertie is re-elected.

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If Ireland opts out of the Euro to save house owners I will wash my hands of this country. I'll be on the first plane to Oz.

Mind you I don't think even that can save it the bubble in the long run.

But the loans are already made and due in Euro. How could they affect that? The Banks would go ballistic.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
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      • up 5%



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