Marc Coleman (from Dublin): “Indicators on the real economy moving forward, in contrast, are more hopeful”

Ireland jumped today to 6th in the probability default (PD) world ranking from CMA DataVision monitor. Worse than Dubai, Portugal or Romania. A PD of more than 27 per cent in a 5 year horizon. Also the yields neared 6% in 10 years maturities, a record.

From Dublin, Marc Coleman, the most important economics editor, stated for janelanaweb and Expresso:

“The ranking of probability of default is certainly not welcome. But it is no determinant of the likelihood or even probability of default, although the possibility is certainly real.

The crucial comment to be made – and repeated – is that such market events are reacting strongly to negative news on Anglo Irish Bank. This is largely backward looking and relates to the lagged effect of the recession on banks in 2008 and 2009 and the huge losses relating to the transfer of losses to the National Asset Management Agency. Further large losses will be reported over the coming 9 to 12 months.

This is already known in advance but not yet formally realized in the form of publication and reacting to such news is like reacting to Thunder when you know the event that caused it (lightning) has already happened. Indicators on the real economy moving forward, in contrast, are more hopeful. The stabilization of tax revenues in the months of June, July and August suggests an inflection point.

This notwithstanding the banking situation is challenging as other banks face a challenge to recapitalize at a very difficult time. This is why the tone of commentary now is crucial.

Inspiring some confidence in positive signs in the world economy – encouraging news from the US, signs of improved growth outlook in Europe and stabilization in Ireland’s real economy – can help focus attention on the long term potential of Irish banks if, as predicted, the economy grows by 3 per cent of GDP next year.

On the other hand excessive attention on only bad news could make a recession a self-fulfilling prophecy. On September 24th next I will organize a conference in Dublin on how best to report economic news in a way that strikes the right balance between reporting the truth without dramatizing or misinterpreting it.”

Marc Coleman, Economics Editor, Newstalk 106-108fm

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