Successful return to markets but scars will take time to heal

Ireland will make a successful and sustained return to market funding over 2014, although the growth rate across the eurozone will remain subdued for years to come because of the scars left by the financial crisis, according to the EY Eurozone Forecast.

“Ireland looks well placed to fund its public finance needs from the markets from 2014.

“This is the result of years of hard work that have left the Irish economy stronger and better able to generate sustained growth,” says Marie Diron, senior economic adviser to EY Eurozone Forecast.

The forecast estimates that the eurozone will contract by 0.5% this year and grow by 0.9% next year. Between 2015 and 2017, the growth rate is expected to average 1.6% each year, which is well below the growth rates forecast for the US and UK.

Ms Diron points out that the average growth rate across the eurozone between 1998 and 2007 was 2.3%, whereas the average between 2008 and 2017 is expected to be 0.4%.

“The eurozone is on the road to recovery but deep scars will remain from the crisis. Growth will continue to be low and unemployment, although now stabilising, will remain high.

“This has significant implications for businesses in the region as they consider their long-term plans,” she added.

The number of unemployed in the eurozone is expected to average 18m between 2008 and 2017 compared with 13m between 1998 and 2007 — another stark reminder of the extent of the crisis.

“As we head into 2014 conditions in the eurozone should continue to improve.

“There will be increased domestic demand as unemployment begins to stabilise and inflation continues to fall causing a rise in consumer spending.

“However, the recovery must be based on a programme of broader reforms aimed at boosting competitiveness.”

The report found that Irish exports are expected to accelerate over the next few years on the back of improved competitiveness.

“The recent announcement to lift the ban and allow access for Irish beef exports to Japan is encouraging for exporters in the agriculture sector,” said Mike McKerr, managing partner of EY Ireland.

“It increases our chances of a similar move with China which would enhance the Irish beef export industry.

“This keeps us at pace with countries such as Denmark and France — whose ban on beef exports were lifted in February this year,” he said.

The biggest threats to the eurozone include the possibility of deflation.

If current low inflation levels persist, then a further easing of monetary policy could be warranted in 2014.

Moreover, the comprehensive review of the banking system, which is scheduled for the next 12 months, has to produce results that satisfy the market that a rigorous enough assessment has been conducted, she added.