GUBU spells out key issues for the new year
I was informed afterwards I had inadvertently stumbled across an acronym that would resonate with older readers — GUBU.
In my view, the key issues for Ireland in 2014 will be growth, unemployment, banking and uncertainty — growth in the international economy; the necessity to cut unemployment; the need to restore a functioning banking system; and intense uncertainty regarding the policy approach in the eurozone and many other issues outside of our over the coming year. There you have it — GUBU.
As a small, open economy where exports are again becoming the lifeblood of the economy, the external growth outlook will be crucial over the coming year. The performance of external trade will primarily determine our ability to achieve the 2% growth target that is the foundation for Budget 2014.
On current trends, the outlook for the Anglo-Saxon world looks reasonably bright. The US economy is still growing below potential but policy-makers there remain very committed to ensuring that the policy environment is as conductive to driving recovery as possible.
The UK economy so far has surpassed all expectations on the upside. However, the eurozone is the key source of concern for 2014.
The growth momentum is still very poor, particularly in the big French and Italian economies. The ECB will have to cast aside its policy shackles and become much more adventurous in 2014. Here’s hoping.
The big policy challenge in this country is to get unemployment down. The Taoiseach has stated a wish to get the rate of unemployment down to 10% by 2016.
Labour market data this week showed that steady progress is being made in creating jobs, with 58,000 net new jobs created in the year to the end of September, and the unemployment rate has fallen to 12.8%.
With fair external winds, obviously not guaranteed, and a domestic policy approach focused on improving the environment for business costs and job creation, the Taoiseach’s target could be achieved, but will require a degree of luck.
The third element of the GUBU is banking. Ireland’s banking system has been dealt a very savage blow over the past six years and is currently not in a position to supply adequate credit to the economy.
It is helpful that Bank of Ireland is at least starting to stand on its own feet and the State is now on the verge of getting its investment in that bank back with some profit. This will help Bank of Ireland move closer to a normal functioning bank.
The challenge for the State-owned AIB will obviously be much greater. Foreign owned banks are not particularly engaged in Ireland at the moment, to put it mildly. Accessing finance for the SME sector will remain a challenge in 2014, but hopefully we will see the banking sector making further progress on the path to normal functionality.
The final element of GUBU is the uncertainty piece. The future by definition is always uncertain, but we have been subjected to more than our full quota over the past six years.
We are starting to come out the other end, but there are still many issues and uncertainties to worry about in 2014.
It appears to me that the key external uncertainties will revolve around the economic performance of the eurozone and the stress testing of the larger banks in the zone. Domestically, the health of our banking system and the ability to fund the sovereign again, are likely to be the key issues.
However, the future is always uncertain and inevitably some issue will arise that we haven’t thought about. That is the nature of uncertainty and risk. We must hope for the best.
