In the context of the travails that the Irish economy has endured since 2008, 2012 was not the worst year of the “depression”, and in fact turned out somewhat less bad than might have been expected.
This is in the sense that the pace of deterioration in variables such as the construction sector, consumer spending, business investment spending, and public finances slowed, and there were suggestions of stabilisation. Before we can start imagining recovery, though, stabilisation has first to be seen. Hopefully that will be the story for 2013.
On a positive note, the export side of the economy continued to grow. For the agri-food sector, it was also a decent year, with leading players such as Glanbia and the Kerry Group all delivering a good performance.
Tourism also had a better year, and the IT sector put in a decent performance. On the negative side, clearly the ongoing weakness of the labour market was the key cause of concern and remains the biggest challenge facing the economy. Of course, this problem is exacerbated by and is, in turn, exacerbating the dire state of the public finances.
For the global economy, it was a very tough year, however. The eurozone went into recession, and the UK economy spent most of the year in a similar state. As usual, the US economy performed better, but still not to the levels that US policymakers would desire. In the emerging economies, the long-foretold implosion of China did not materialise and the so-called Bric economies continued to build on their strength.
Looking ahead to the global economy in the year ahead, it promises to be another challenging year. Coming into a new year with poor or non-existent growth momentum is not exactly the best place to be, but that is the reality facing the eurozone economies, and the UK in particular.
Key areas to watch will be the progress towards putting banking union legislation in place; the attitude the ECB adopts towards outright bond buying and quantitative easing; and what it might do in terms of taking rates down from already very low levels of 0.75%.
However, the biggest event of the year in Europe will be the German election in the autumn. Angela Merkel is under pressure, with many Germans unhappy with the manner in which the euro crisis in particular, and the eurozone in general, are developing.
In the US, the main challenge is in the early days of the new year, when the administration and the House must wrangle over a deal to lift the debt ceiling and avoid obligatory cuts in spending and tax-raising measures that would push that economy into recession. Falling over the fiscal cliff was avoided in 2011, and will be avoided in 2013.
For Ireland, there is only one item on the agenda — a deal to relieve our unsustainable level of sovereign debt. If a deal is forthcoming, it would represent a real game changer, but without it, we can look forward to many years of fiscal austerity, a higher tax burden, and poorer public services.
I do not believe we should accept that and if a deal of sufficient magnitude is not forthcoming, we should consider the nuclear option and threaten to leave the eurozone. This would be dramatic, but the threat might just be the catalyst needed to focus minds.
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