Ireland a ‘growth pocket’ in stagnant eurozone

The Irish economy will be a “pocket of growth” in an otherwise sclerotic eurozone helped by a weak euro and strong recovery among its main trading partners, according to a leading economist.

Richard Lacaille, global chief investment officer at State Street Global Advisors, says Irish exports are set to grow as the effects of the ECB’s quantitative easing programme cause the euro to weaken.

Technology, tourism, and agriculture products will benefit most as they have rising trade ties with the US and UK markets.

However, growth rates in the eurozone will remain constrained as the incomplete architecture of monetary union weighs on the region’s potential.

He does not expect Greece to be bounced out of the eurozone over the coming weeks and month, although “bad decisions could be made”.

A “muddle through” compromise, which would be face-saving for the newly elected Greek government and satisfies the rest of the eurozone that the reform agenda is still being pursued, is the most likely outcome of current negotiations, Mr Lacaille says.

But the German government’s insistence that competitiveness has to be regained through internal devaluation is freighted with huge short- to medium-term risks such as political instability.

Quantitative easing led to a sharp turnaround in the economic fortunes of both the UK and US economies. QE will help the eurozone but because of the fiscal headwinds across the region, it will not have a similar effect as it did in either the UK or US, Mr Lacaille says.

The possibility of the UK leaving the EU is an obvious risk for the Irish economy. But for this to happen, the Conservative Party would need an outright majority and “there is no certainty of that”, he says.

Moreover, even if there is a referendum, the ‘fear factor’ is likely to be decisive in ensuring the UK remains part of the EU, he adds.

War breaking out between Russia and Ukraine; Greece exiting the eurozone; and a pronounced slowdown in China are the main threats to the global economy.

Record low interest rates pose a challenge for investors, he says. But with global growth expected to average 3.5% this year, equities offer the most attractive returns.

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