Inside the world of business

There may be trouble ahead 

THERE MAY be trouble ahead in 2011, Bank of America believes – and not just for EU countries struggling to keep the euro on the road – as it fears Barack Obama’s decision not to tighten American spending is storing up difficulties for the dollar.

Presenting its forecast for 2011, however, the bank believes – though some doubt it – that Ireland got a good deal in the negotiations with the IMF and the EU when it secured an extra year to bring its deficit down to 3 per cent of GDP.

Now that we have had to seek aid, BoA believes it is very likely that Portugal and somewhat likely that Spain will need to get bailouts because of the difficulties they will face raising loans.

The gap between the rates faced by “core” euro zone countries, such as Germany, and “peripherals”, such as Spain and Portugal, will “intensify next year”, with the stronger countries benefiting “from a safe haven bid” by investors.

However, it expects that the questions surrounding the recapitalisation of European banks will be dealt with by the time it comes to offer its forecasts for 2012: “If we are, then it will have been a very tough year,” said bank executive, Gary Baker.

BoA senior economist Silva Ardagna said she believed Irish spending cuts and increased borrowings are sustainable, particularly since the spending cuts will bring Ireland back to 2004/2005 levels.

“What Ireland is doing on the fiscal side is almost replicating what it did in the late 1980s when the fiscal position was in a similar shape. I think these are the kind of measures that will give Ireland a higher probability of stabilising its debt/GDP ratio and start growing in coming years,” she said.

“The cuts are very strong, but they are basically going back to pre-crisis, around 2004/2005 levels, so basically the economy can sustain those,” said Ms Ardagna.

Film industry doesn't want to hear 'cut'

GOOD NEWS is hard to come by right now, but the launch of Ibec’s review of the audio-visual industry yesterday provided a welcome relief. It is estimated that, in total, the audio-visual industry contributes about half a billion euro to the economy, and employs about 6,000 people. The sub-section of the industry covered in Ibec’s report – the feature film, independent television and animation sectors – was worth an estimated €367 million in2010, a 50 per cent increase on 2009.

The success of this small but thriving industry is to be applauded. However, it is also worth noting that the industry is sustained to a large extent by tax breaks. The tax incentive scheme for films, known as section 481, stretches back in different forms to 1987. The 2008 budget extended the relief from 80 per cent to 100 per cent on investment.

The Irish Film Board largely escaped cuts in last week’s Budget, with the capital budget decreasing by €0.5 million to €16 million. Yesterday, representatives of the industry urged the Government to extend the scheme past 2012. The industry rightly argues that the sector gives a net benefit to the Government, and also makes a significant contribution to the economy. However, in the long term the industry may have to look at how it can sustain itself without public money. However successful it may be, the industry demonstrates the difficulty in reconciling creativity and commerce.

TODAY

A glimpse of the economy’s progress will emerge from National Accounts for the third quarter, to be published by the CSO this morning.