Hope amid uncertainty


Hope amid uncertainty in a volatile world. That is one way of viewing the Economic and Social Research Institute’s (ESRI) qualified optimism about the Irish economy’s growth prospects. The ESRI, in its latest quarterly commentary, is forecasting a modest (1.8 per cent of GDP) rate of growth this year, rising to 2.7 per cent in 2014. However, given the open nature of the Irish economy, the forecast contains an obvious caveat. Fulfilment of the ESRI’s predictions – which are more ambitious than forecasts made either by the Government or the European Commission – will depend more on the international environment for growth, and less on the level of domestic economic activity.

Certainly, when set against the background of the weak performance of the euro zone economies, which this week recorded negative growth in the first quarter of 2013, the ESRI forecasts do seem challenging. Germany’s economy has slowed and is barely growing – at 0.1 per cent.

The French economy is back in recession while recession in Italy continues to deepen. And with the euro zone’s unemployment rate at 12.1 per cent, its highest ever level, it again reinforces the need for the European Central Bank to lower interest rates and to loosen monetary policy to assist economic recovery.

However, there are – outside the euro zone – increased grounds for measured optimism. Mervyn King, the outgoing governor of the Bank of England, has predicted a “modest and sustained recovery” for the UK economy. The US economy is set to grow at 3 per cent this year. In Japan, the world’s third largest economy, the policy formula of prime minister Shinzo Abe – Abenomics – already shows signs of success, with an annualised growth rate of 3.5 per cent in the first quarter. The ESRI’s forecasts, based on the assumption that the European economy returns to growth in 2014, helped by clear signs of recovery in the major world economies, seem not unreasonable against that improving global background.