In the global, EU and Irish arenas, the bleak vista looks set to grind on
“After five years of crisis, the global economy is weakening again.” That is the opening sentence of what is among the most closely watched regular reports on the world’s economic prospects.
Readers of yesterday’s Economic Outlook by the Organisation for Economic Co-operation and Development might feel like cowering behind the couch so gloom-laden are its latest bi-annually published forecasts and analysis.
The Paris-based organisation yesterday highlighted the many aspects of what it sees as a very fragile situation. “A major new [global] contraction cannot be ruled out,” it says. It goes on to warn that the euro might not survive.
These are some of the things that the influential think tank fears could happen.
Among the things it thinks will happen is continuing recession in Europe (until early next year at least). It also believes that most other large economies will grow more slowly out to 2014 than it did previously.
If the OECD is gloomy about the global economic outlook, it is sharply critical of many governments and central banks for their “insufficient and ineffective policy responses”.
The European Central Bank should do more to support growth, it says, by further cutting interest rates and by starting quantitative easing (money printing).
Quantitative easing
For the major OECD economies that have already gone down that route, it urges “much stronger additional quantitative easing”. Monetary stimulus should be matched by fiscal stimulus (tax cuts and increased government spending) in Germany and some other larger and/or less indebted economies, it advocates.
If the OECD’s economists have grave concerns about the state of the world and European economies, their views on the outlook for Ireland’s have changed little and are in line with the Government’s and those of the troika. Resorting to what has become a cliche when commenting on the Coalition’s implementation of its bailout, the OECD says that “Ireland is doing its homework”.
More controversially, the organisation weighed into the debate on the balancing of the Government’s book. It echoed advice repeated by the International Monetary Fund on many occasions that the Government should not cut its deficit by more than currently projected if the economy weakens.
Peaking of public debt
Relevant for the prospects of relief on the State’s bank debts are the OECD’s public finances projections. As with the forecasts of the Government, the European Commission and other international organisations, the OECD thinks that Ireland’s public debt will peak at about 120 per cent of gross domestic product.
As it happens, they also share the view Portugal’s debt levels will top out at the same level. Both countries are in bailouts. Greece is the third euro area country to be formally and fully in that position.
The deal reached early yesterday morning on Greece’s debt aims to reduce it to 120 per cent of GDP. That level is considered sustainable by the Europeans. If it is sustainable for Greece, it is sustainable for Ireland and Portugal say many in the capitals of the euro zone’s creditor countries. There is still some way to go before Michael Noonan can claim a game-changing victory.