Additional measures from the EU, combined with fiscal consolidation and further progress on structural reforms, would make Ireland well positioned to make a full market return in 2014, according to the OECD in its latest ‘Economic Outlook’ report.
The OECD (Organisation for Economic Co-operation and Development) noted that financial market confidence in Ireland had improved on the back of a successful implementation of the EU/IMF bailout programme. However, this improved market confidence has not fed through to improved lending to households and SMEs.
“Little progress has been made in dealing with non-performing loans and mortgage arrears continue to increase, although at a slower pace. Faster progress on both fronts is essential to strengthen credit growth, domestic demand and job creation.”
Exports will remain the key driver of growth, which means that the complexion of the economy over the near-to-medium term is highly dependent on health of the country’s trading partners. Business investment is expected to pick up as multinationals continue to increase their investment.
Decisive labour market reforms are needed to deal with stubbornly high levels of long-term unemployment, however.
Even though job losses look to have stabilised, the jobless rate still exceeds 14%.
The report said growth in the labour-intensive domestic economy is needed to solve the unemployment problem.
The eurozone remains the most challenged of the major economies. “Protracted weakness could evolve into stagnation with negative implications for the global economy. Such a perspective would resonate negatively with large persistent risks of adverse interactions between weakly capitalised banks, public debt financing requirements and exit risks.”
The OECD urged the ECB to take non-conventional measures to support growth in the eurozone as well as maintaining its accommodative monetary policy stance.
The strengthening of eurozone institutions, including banking union, is needed.
On a more positive note, competitiveness on the periphery is improving and government debt ratios are beginning to stabilise.
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