Thursday, July 03, 2008

ESRI Forecasts

The ESRI now says we're in recession. It was only last October that they forecast growth of 2.9% for this year. I remember back in the 90s they were consistently way low on their estimates of growth when the economy was taking off.

So, what to make of their forecast that we'll see growth returning weakly in 2009 and more strongly in 2010. According to Paul Tansey, not much.
Yet, the conventional wisdom now holds that, whatever the economy's current travails, it will rebound to reasonable health in the years from 2010 onwards.

The key text quoted in support of this consoling prognosis is the Economic and Social Research Institute's Medium-Term Review 2008-2015. The ESRI does indeed foresee annual average growth of 3.8 per cent in real Gross National Product between 2010 and 2015 in its central forecast.

… The ESRI notes that "the benchmark forecast assumes that domestic policies will accommodate the objective of maintaining competitiveness over the medium-term".

However, the central problem lies in the fact that it may not be within the capacity of domestic policies to revive Irish price competitiveness. Ireland's arsenal of policy instruments was depleted on entry to the euro. Monetary policy and exchange rate policy were surrendered to Europe.

Thereafter, the use of both policy instruments was dictated by the requirements of the core euro zone economies, not by the needs of the peripheral players such as Ireland.
Our economy is just too small and too far out of synch with the rest of the Eurozone to justify being part of the Euro.