Inside the world of business
The Irish economy and the wounded antelope
Has the Celtic Tiger morphed into a heavily wounded antelope?
It’s an attractive image to demonstrate the rapid turnaround in Ireland’s economic fortunes. It comes from Robin Chater, secretary general of the Federation of European Employers (FedEE).
Chater, and presumably the members of FedEE who are predominantly multinationals in Europe, feel the European Union’s prediction that the Irish economy will grow by 2.3 per cent next year is overly optimistic and not based on current realities, and put out a press release to that effect yesterday.
The EU’s statistical wing, Eurostat, is not alone in predicting strong growth for Ireland next year. The ESRI is also predicting the economy will expand by 2.3 per cent in 2013, well ahead of the 1.5 per cent predicted for the EU as a whole. Chater is not convinced.
“So much of the European Union’s optimism is based on a fundamental change in Ireland’s fortunes - but with very little substance on which to peg such rising expectations. Ireland’s leading politicians are doing all they can to talk up the country’s future and perhaps the oracle will engender a self-fulfilling dream.” Instead he suggests the best that can be hoped for is growth somewhat below the overall EU figure of 1.5 per cent.
Although London-based Chater says he’s been a regular visitor to these shores, FedEE can boast some inside knowledge of Irish matters. Gary Byrne, a partner and co-founder of law firm Byrne Wallace, which grew its property practice during the boom, is deputy chair of the organisation.
There is little doubt there is an agenda to talk up the success of the Irish austerity experiment. There are significant issues such as the growth in long-term and youth unemployment which are being overlooked. But is it enough to write off the growth projections of several economic thinktanks on the basis that they have become a political football?
Wise metal and mining moves at Kentz see revenues jump
One of the features that stood out from engineering group Kentz’s 2011 prelims yesterday was the jump in revenues from the metals and mining sector.
Of the full-year total, $1.37 billion, $333 million came from the metals and mining sector, a jump of 158 per cent from the $129 million revenue contribution from that industry in 2010.
As a proportion of overall revenues, metals and mining’s contribution doubled from 13 per cent in 2010 to 25 per cent last year.
Chief executive Chris Brown says that the expansion of its activity in this sector is part of an overall strategy of spreading its interests across a number of industries.
Last year, Bariq Mining and Ma’aden Alcoa Aluminium, both in Saudi Arabia, where Kentz has a long history, awarded it significant construction and instrumentation contracts.
Metals prices have travelled only one way in recent years, thanks to demand from emerging eonomies, and particularly China.
Since it has become clear that the world’s second biggest economy is likely to rein in growth this year, these commodities have beaten a slight retreat.
However, Brown says that the group is not too concerned at this development, as it is “not backing a single commodity or a single miner” and has a sufficiently diverse portfolio in this industry.
Oil, gas and petrochemicals remained the big outlet for Kentz, accounting for $842 million of its revenues, as near to 65 per cent as makes no difference.
Its chairman, Tan Sri Mohd Razali Abdul Rahman, noted that credit downgrades and the European sovereign debt crisis hit energy-associated stocks last year.
However, the flip side is that, arguably, without Europe’s problems, oil would be a lot more expensive. That being said, its price was down 0.11 per cent at $106.75 a barrel in New York last night on the back of concerns about Asia.
However, the reality is that the global appetite for oil is increasing and prices are likely to remain at levels that will encourage continued exploration and production for the foreseeable future.
In other words, a company such as Kentz, which services the oil and gas sector rather than taking the exploration and production risks itself, looks a good bet.
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Elderfield in the lion's den
Central Bank deputy governor Matthew Elderfield entered the lion’s den yesterday, addressing members of German chancellor Angela Merkel’s CDU and its Bavarian associate conservative party the CSU in the Bundestag.
In his role as alternate chairman of the European Banking Authority, he suggested that a “breathing space” provided by the decision not to run stress tests this year should be used to “recalibrate” the EU approach to the assessment of the financial health of banks across the bloc. Elderfield, who has had plenty of experience of the practical impact of the stress tests on the bank’s under his direct supervision in Dublin said the existing stress test model “encourage banks to hoard capital may make economic downturns more severe”.
It could almost be a line from one of the regular briefing by Ireland’s business lobby and reflects the widespread belief that banks across the euro zone are reluctant to loosen the purse strings on lending while they face the prospect of ever tighter regulation.
The EBA recently said that EU banks plan to raise about €98 billion in new capital by the end of June as they bring their core capital level up to 9 per cent of risk weighted assets.
In a parliament building that has heard regular calls from politicians for even tougher measures to restore Europe to fiscal balance, Elderfield suggested the next round of stress tests in 2013 “should focus less on capital benchmarks” and more on “diagnostic tools”.
It has been suggested that regulators may extend the scope of tests to check whether business models are too risky or vulnerable. Elderfield signalled any change on the capital buffer would not be done before greater clarity is brought to the euro zone debt crisis.
TODAY
The OECD publishes its latest assessment of the economies of the euro zone.
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