Wednesday, December 19, 2007

Ireland `Celtic Tiger' Economy May Withstand Property Collapse

Ireland's ``Celtic tiger'' economy may continue to purr even if some of the roar has gone, says the economist who coined the term in 1994.

While ``the economy won't grow at the same ferocious rate that it did over the last decade,'' it ``won't give up the gains of the boom,'' says Kevin Gardiner, head of global equity strategy at HSBC Holdings Plc in London, who as a Morgan Stanley economist labeled Ireland a new ``tiger'' economy to rival Asia's.

Ireland's growth was fueled by a fourfold increase in property prices over the past decade. Now a 184-billion euro ($265 billion) government plan to rebuild roads, bridges and power stations, coupled with investments by companies such as Microsoft Corp., may help overcome a construction slump triggered by a real-estate reversal.

Ireland's economy will expand 3.5 percent in 2008 after 4.9 percent this year, the European Commission forecast on Nov. 9. While that's down from an average 5.3 percent in the previous five years, it still beats the 2.2 percent forecast for the euro region and the 1.7 percent predicted for the U.S.

As in the U.S. and Spain, the predictions for economic growth depend on Ireland's ability to weather a housing recession.

Home prices are falling after eight interest-rate increases by the European Central Bank since late 2005 doubled borrowing costs. Prices declined 1.3 percent in October, the most in at least 11 years.

``The construction slowdown is overshadowing the fact that the rest of the economy is doing fine,'' says Alan Barrett, an economist at the Dublin-based Economic and Social Research Institute. ``The pessimism is overdone.''

No comments: