SMEs and global recovery are best hopes
As a small player, Ireland is subject to vagaries. But enterprise, banks and less austerity are good tools
More generally, we need to press on with micro measures that foster the growth of smaller companies. More people need to form more companies: that’s the debate over whether or not we have an entrepreneurial culture.
The Tiger years did leave us with one or two favourable legacies. The fact that Ireland has been a welcoming place for immigrants is a big positive. The more people we can bring to this country the better: it is no coincidence that those two successful economies, Britain and the US, are also countries to which people from all over the world try to move.
Economic success attracts immigrants and all the evidence suggests that the process is self-reinforcing: they bring success with them in the form of skills, entrepreneurship and energy. It will stand to us if we can avoid the ugly and statistically irrelevant argument over “welfare benefit tourism” that is taking place in Britain and elsewhere.
Best guesses about growth in 2014 suggest an expansion in gross domestic product of about 2 per cent. In the wider scheme of things that doesn’t amount to much. A “normal” recovery would typically see initial growth rates well in excess of this number.
A sluggish recovery is proving typical around the world, even in those countries where we are getting quite excited about the growth numbers. The headwinds to growth are still strong, particularly in Europe, but less so in the US. Risks from the euro area remain constant. Bailouts of countries could destabilise things again: Slovenia is thought to be a possible candidate, with Portugal and Greece also sources of more trouble.
But Europe’s lack of growth is also a problem for many of the larger countries, particularly Italy, an economy that hasn’t had growth since the turn of the century.
Interest rates, at least those set by the ECB, are close to zero. Conventional monetary stimulus has now reached its limit. If euro zone growth does not resume, all eyes will be on the possibility of an unorthodox move: will the ECB embrace quantitative easing, as practised over the last few years in Britain and the US?
Given the hostility of the Bundesbank to what has been done already, we can conclude that any unconventional steps will be extremely controversial and fiercely resisted. The potential inability of the ECB to prevent deflation, or at least to achieve its inflation target, is one reason to fear prolonged European stagnation.
On the other side of the Atlantic, the flipside to better economic growth could be an end, or the beginning of the end, of the Federal Reserve’s monetary stimulus. I think this is likely to be less of a big deal than many market commentators seem to believe but it is another source of potential financial instability.