THE MEDIUM-term prospects for the Irish economy are good, if people behave sensibly, the director of the Economic and Social Research Institute (ESRI), Prof Frances Ruane told the Ictu economic conference yesterday.
The forthcoming ESRI Medium Term Review would show that the economy can continue to grow at an annual average rate of 4 per cent or more over the medium-term, in line with its long-run average growth rate since 1970, Prof Ruane said.
However, the Medium-Term Review would also show "employment growth just shading negative in 2008", she added.
The initial phase of Irish globalisation was characterised by sustained growth in foreign trade and increasing inflows of foreign direct investment. The high technology content of much of the foreign direct investment inflow together with enhanced education and skills embedded in the Irish labour force quickened the pace of productivity growth. The results were steep additions to employment and incomes, Prof Ruane said.
In the evolving second phase of Ireland's engagement with the global economy, Ireland would be faced with stiffer competition in export markets and increased rates of productivity growth in competitor countries while services would continue to increase their share of Irish exports.
It was imperative to develop a long-term view to meet emerging challenges in the global economy, Prof Ruane said. "If we don't take a long view, we will make some very silly mistakes," she added.
In formulating future strategy, Ireland was constrained by its dependence on global economic trends - a consequence of its openness - the limited range of available policy options and the potentially magnified effects of small shocks on the economy.
Policy needed to stress productivity, efficiency and competitiveness. "If we're not competitive, we're facing a declining cake", she said.
Poul Rasmussen, the Danish prime minister between 1993 and 2001, told the conference the global economy was facing the "worst financial crisis since the second World War" and European growth rates were falling as a result. While the crisis had been triggered by the US subprime lending crisis, its origins lay in the rapid growth in credit derivatives and securitisation, Mr Rasmussen, a member of the European Parliament, said.
The quantum of credit derivatives - "financial weapons of mass destruction" - now stood equivalent to eight or nine times world output, Mr Rasmussen said. The subprime crisis in the United States was far from over, he added. There was no point in engaging in a "blame game" over responsibility for the crisis, Mr Rasmussen said. Instead, he urged governments and regulators to take practical steps to ensure a re- petition of the crisis was avoided.
