The high inflation globally in 2022 has sent global central banks scrambling to rapidly hike interest rates.

These higher rates, coupled with fears about growth prospects over the coming years, mean that both the availability of, and demand for, credit will be lower in 2023.

This is the manifestation of a fairly standard economic phenomenon called the 'credit cycle', where the amount of borrowing in the economy increases when rates are low and optimism about growth is high. Eventually that optimism wanes, prices riser too high and credit growth reverses.

The problem with the credit cycle is that the increase in borrowing bit almost inevitably runs for too long, meaning people were able to borrow too much, thereby over-inflating asset prices.

Extreme example

Ireland was a very extreme example of this in the years up to the financial crisis in 2008.

As we all know, an extreme credit cycle leaves an extremely painful hangover, one which took Ireland's economy most of a decade to recover from.

So, now that we are facing into the end of another credit cycle, does this mean we're going to have a repeat of 2009 to 2013? Thankfully, the answer is almost certainly no.

Much, much tighter regulation from the Irish Central Bank means that there has been no explosion in credit over the past few years.

And while house prices in some areas have recently exceeded the levels seen in 2007, the amount of money borrowed against those houses is considerably lower than 15 years ago.

Hopefully, this all means that Ireland has much less to fear from the rolling over of the credit cycle this time around. However, there will be challenges.

For farmers, the increased cost of working capital, such as stocking loans, will put pressure on margins. Any on-farm investments will have to be looked at to make sure higher interest rates are not going to make projects impractical.

The optimistic scenario suggests that inflation will come under control relatively quickly, allowing central banks to reduce interest costs again. Farming is in a good position to weather such an outcome.

We will watch the economic signals closely in the coming year to make sure we can remain optimistic.