The Irish economist who is reputed to have predicted and first used the term Celtic Tiger has forecast that this State's economy is headed for a crash "within the next year or two".
Mr David McWilliams, who worked at the Central Bank for three years before becoming senior economist and strategist at Banque National de Paris Emerging Markets Group in London, has said that by ignoring current international trends "we are in real danger of moving from the Celtic Tiger to the Celtic Ostrich in a few short years".
At the "Are We Forgetting Something?" conference in Ennis at the weekend, he said the boom had taken place against the backdrop of "a decade-long expansion in the US economy, the surge in the Asian market up to 1997, a strong recovery in the UK and a gradual return to health in the EU. As a new and added dimension, Russia and the rest of eastern Europe embraced our products with gusto."
That had changed dramatically in recent months, while the boom had become ever more hectic. "Krups closed after 20 years in Limerick citing global problems. while a fall in demand in Russia is largely behind the farmers' immediate plight. It is now increasingly certain that boom parts of our economy will experience a significant crash. Take the housing market. In a world of deflation, our housing boom becomes ever more incongruous. Put simply, either global prices rise to legitimate our rising costs or our costs fall in line with everything else. There is simply no other way."
He said Ireland was "defying economic gravity by wholesale borrowing . . . Cheap money is pushing credit growth up above 20 per cent per year while the dynamic economy is growing at only 8 per cent. You don't have to be Einstein to figure that a debtor's cul-de-sac looms. We are living on top of a dangerous debt bubble."
This would be manageable if the world economy was booming in tandem, but it was not. Japan looked like remaining in the doldrums, the US economy was slowing down, Russia remained in trouble and the EU's economists had been schooled in economic theories which never worked. They did not have the collective imagination to realise that a recession was coming.
"Some sort of crisis is around the corner unless we get a significant kick to world output, and this does not look likely over coming months," he said. Since the Middle Ages, booms were almost always followed by busts. "The only debate is on the degree of their severity. In plain terms, `soft landings' rarely happen".
To lessen the impact, he called for an immediate property tax, the introduction of tighter bank-lending criteria, the encouragement of the banks to lend in foreign markets and "a bit of common sense". Otherwise, he forecast a return to emigration and a Government budget deficit by 2001. The conference web address is http:// homepage.tinet.ie/millenniumcon.
