Expert warns protectionism will prolong global recession

THE risk of growing protectionism as the global economy falters could prolong the worldwide recession, a top economist has warned.

It could also seriously set back the recovery in the Irish economy, which will decline by more than 9% this year, said Austin Hughes, economist at KBC Bank Ireland.

In his address to the OSCE conference in Dublin, Mr Hughes said any shift towards protectionism by individual states “could be quite damaging” for the Irish economy.

“It is virtually certain that protectionism is increasing as we speak and protectionist tendencies seem set to increase a good deal further in the next year or two,” he said.

In the current tough global economic climate, Mr Hughes warned, there was “a real risk” that increased protectionism would lead to weaker activity and employment worldwide – as well as a more prolonged downturn.

In the European context, Mr Hughes warned, such moves could lead to a “particularly nasty downturn” that would have significant implications for the future complexion of the EU.

From an Irish perspective, such developments could result in “a far less encouraging outlook for smaller economies such as Ireland and many others,” he said.

There was a “risk of complacency” in that regard” because there is wide international agreement that strong growth in international trade “has been a key driver of rising living standards through the past 20 years,” he said.

But, Mr Hughes added, “something has changed, changed utterly of late” because the global economy had clearly fallen off a cliff.

Whether that downturn was expressed in terms of a collapse in Japanese exports, in European manufacturing orders, or in US business capital spending, “the experience of the past year has been traumatic and has caused us to question all sorts of things we thought were permanent truths”.

Mr Hughes said the recent decline in world trade had been at a pace similar to that seen during the Great Depression.

That kind of “freefall” could provide a major impetus to protectionism, he said.

It was suggested we would not make the mistakes made in the 1930s again, he said.

But “there is a serious risk we will make reasonably similar errors” – with serious economic consequences to follow, he warned.