US PRESIDENT Barack Obama has given the strongest indication yet that he believes the first green shoots of economic recovery are beginning to emerge in America, but he cautioned that the world’s biggest economy still has a battle ahead.
“There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope,” Mr Obama said in his speech at Georgetown University in Washington DC.
Any hopes that Ireland would quickly benefit from a US revival were dampened by economists yesterday. Experts warned that the Republic will lag behind any pick-up in the US, as economic growth here depends on exporting goods and services to both there and Europe.
Mr Obama’s speech, billed as a full and frank assessment of the state of America’s economy and the administration’s efforts to ease what is the biggest recession in a generation, was clearly designed to silence critics in the US Congress, chiefly from the Republican Party, who are opposed to his $787 billion (€593 billion) economic stimulus package.
“Economists on both the left and right agree that the last thing a government should do in the middle of a recession is to cut back on spending,” the president said. “If families, business, and the government all cut back at the same time, the recession will get worse and last longer.”
US businesses have been cutting staff at an unprecedented rate, but Mr Obama said the new signs of recovery included job creation, particularly in teaching, local government and law enforcement.
Record low interest rates of 0.25 per cent are allowing families to refinance their mortgages, while small businesses are beginning to see credit flow once more.
The president said that low house prices and loan charges are encouraging first-time buyers into the property market.
However, he was careful not to raise false hopes. “It does not mean that hard times are over,” he said. “This recession will cause more job loss, more foreclosures and more pain before it ends.”
US central bank chairman Ben Bernanke said separately yesterday that there were signs that the decline was slowing.
Pat McArdle, chief economist with Ulster Bank, told The Irish Times the general consensus is that the Republic’s recovery will trail the US, Britain and key euro zone economies such as France and Germany.
“We need to export our way out of this situation,” Mr McArdle said. “The US, Europe and the UK, where export markets have been weak, have to start emerging from recession first. So by definition, Ireland will be last in line.”
He added that the Republic needed to regain cost competitiveness, which is going to be difficult in light of the fact that both the dollar and sterling have weakened against the euro.
Mr McArdle said that the Republic’s costs are about 30 per cent out of line with Britain, the country’s second biggest export market and a key one for many small- and medium-sized businesses.
About one-third of this is a result of high wages and costs in the Republic, while the rest is related to the euro’s strength against sterling.
Prof John Fitzgerald of the Economic and Social Research Institute (ESRI) makes a similar point in a report on the difficulties faced by the Republic that was published just over two weeks ago.
The ESRI report also recommends restoring competitiveness as being key to ensuring that the Republic begins to recover as the US and other economies emerge from recession.