Conference Board chief tells PAT MCARDLEthat exports will be catalyst for recovery, though our growth rates will be low
BART VAN Ark, an amiable Dutchman who is chief economist of the Conference Board, paid a flying visit to Dublin this week.
Van Ark, a recognised expert in international comparative studies of economic performance, was in a good mood, having just got the above-consensus out-turn for third-quarter US GDP growth pretty much bang on. The 3.5 per cent increase was the first positive number in more than a year and caused stock markets to bounce. However, economists have reservations.
He had an interesting take on the current crisis, citing four causative factors. First, there is the financial crisis, which will take a long time to unwind as debt as a proportion of GDP has hardly begun to fall. Second, there are the global imbalances highlighted by the US savings and balance of payments gaps, but he sees no signs of any structural shifts yet. Third, there is the regular business cycle. Many countries, including Ireland, were at the peak and were due a fall. Finally, there is the technology innovation cycle – productivity had begun to slow as far back as 2004, but this was little noticed.
Against this background, it is easy to see why van Ark, who publishes a commentary entitled StraightTalk, was one of the first to predict a W-shaped recovery. He remains of that view although he does not expect the second leg of the downswing to be anywhere near as severe as the first. In this he is now receiving backing from some influential sources.
Christina Romer, who chairs the US Council of Economic Advisors and is credited as the chief architect of Obama’s $800 billion (€542.4 billion) fiscal stimulus plan, put the cat amongst the pigeons recently when she noted that all of the recorded growth in the third quarter was accounted for by the governmental measures.
She added that the fiscal stimulus has already had its greatest impact and that the boost would dwindle to zero by mid-2010. Growth will, thus, be insufficient to prevent unemployment rising above 10 per cent and staying there. Van Ark agrees.
The other major jolt to the conventional wisdom came from the Conference Board itself. Its widely respected consumer confidence index fell back unexpectedly in October for a second successive monthly fall. The index of current conditions hit a 26-year low, with labour market conditions the main factor, and consumers were also more pessimistic about the short-term outlook. With consumer spending accounting for more than 70 per cent of the US economy, the recovery will have to originate elsewhere.
Van Ark believes that exports will be the catalyst but that the “old world” will grow at rates significantly slower than hitherto. Meanwhile, the risk of disappointment when the fiscal and monetary stimuli cease to expand or, worse still, are withdrawn, is significant. He expects the dollar to remain weak – this is not an issue outside of Europe – and is concerned about China, where growth has been funded by credit.
He was reasonably optimistic about Ireland, given our past dynamism and flexibility, but noted that our strongest ties are with countries like the UK and the US, which will not be the fastest growers in the future.
Ireland could be a candidate for another tech boom, perhaps in environmental technology rather than information technology. He thinks we have huge potential to grow and advises us to “hang in there” for a while.
He is a fan of the partnership process, noting that in the 1980s the Netherlands was in a similar position to Ireland today. Its social partners produced a long-term agreement on wage moderation in return for jobs.
However, Irish unions are taking a different route, importing and taking advice from Arthur Scargill, a noted intransigent miners’ union leader who was famously crushed by Maggie Thatcher in the 1980s.
It is unlikely that their paths crossed during their brief sojourns in Ireland; if they did it is even more unlikely that Art and Bart had a meeting of minds.
THE CONFERENCE BOARD is a subscription-based, non-profit, business organisation founded in the US in 1916 by a lawyer, a banker and an engineer. It has clients in almost 60 countries, with more than 200 in Europe, including the ESB and CRH. ESB head Pádraig McManus, is a member of the board of trustees.
Its aim is to “help businesses strengthen their performance and better serve society”, but is better known to economists as the source of a range of monthly leading economic indicators and consumer confidence surveys.
