The speed of Ireland‘s recovery will depend on whether it can continue to reverse the “brain drain” that has at times left its battered economy lacking expertise in key sectors, an economist said in Atlanta.
“The future of Ireland will be determined by whether intellectual capital comes back or leaves,” said Jeffrey Rosensweig, a finance professor at Emory University‘s Goizueta Business School who focuses on the global economy.
With a shortage of natural resources, Ireland has built much of its modern economy on services and exports, sectors that employ many of the island nation’s 4.5 million people.
The mid-1990s brought about an unprecedented boom during which Ireland averaged nearly 7 percent annual growth for 15 years, Dr. Rosensweig said. Foreign investment fueled much of the rise, as multinationals in information technology, pharmaceuticals and other sectors moved in to take advantage of Ireland’s low tax rate, skilled workforce and access to the European Union market.
Many Irish citizens who had emigrated to the U.S. and elsewhere returned to their homeland during the island’s meteoric rise as the “Celtic Tiger,” Dr. Rosensweig told an audience at an Ireland Chamber of Commerce of the U.S. luncheon last month.
But it all came crashing down with the global financial crisis of 2008 and the recession of 2009, which was exacerbated in Ireland when a real-estate bubble burst. The Irish economy shrank by an estimated 10 percent in 2009, more than any other country besides Russia, and unemployment this month rose to a 15-year high of 12.7 percent.
Ireland’s economy could end up smaller in 2014 than it was in 2007, Dr. Rosensweig said. Getting back on the long road to recovery will depend on whether Ireland can keep its well-educated workforce and attract even more human capital.
“The touchpoint for Ireland will be: Does the diaspora go back or is there a further spread into a diaspora? That will be the key,” he said.
Dr. Rosensweig painted a grim picture for the Irish economy. It will “lag the world” in 2010 and should expect a “moribund recovery” in 2011, he said. It could take until 2014 for Ireland to reach a growth rate that will put a dent in its unemployment rate.
The country, whose growth in recent years rivaled that of China and other emerging markets, is one of a handful forecast to remain in recession, along with Spain. “The one that definitely won’t end up positive is Ireland,” Dr. Rosensweig said.
But in the long-term, there’s a caveat to the pessimism. Ireland is coming down from a historic high. Even with the steep fall, its economy will ultimately be better off than when it started its growth run.
“This is a decline after the greatest growth period of any advanced economy that we’ve seen,” Dr. Rosensweig said. “The Celtic Tiger was not a two- or three-year thing. It was decades. If you grow 7 percent a year for decades and you compound that growth, you can blow off even 10 percent and you’re still a lot higher than where you started.”
As for the rest of the world, most economies have come out of recession, Dr. Rosensweig said. Some, like China and India, never stopped growing even during the worst of times. In the coming years, Dr. Rosensweig expects the “locomotive” of economic growth to shift even further from the U.S. to Asia. He envisioned a “multi-polar” world in which China and India ascend to superpower status while the U.S. and European Union maintain their important roles.
“The world has fundamentally changed, and you can see that the 21st century is probably going to be the Asian century,” he said.
World trade will continue to grow, much of it coming from activity within Asia, Dr. Rosensweig said.
“I’m bullish on a huge increase in world trade in the next 10 years,” he said.
In the U.S., exports and imports have both risen for seven months running. The export boost is a function of the dollar’s weakness compared to the euro and could lead to job creation, he added.
On the surface, a rise in imports and a greater trade deficit looks bad for the U.S., which he called the “credit-card nation.” But much of this new volume is made up of oil and capital goods like robots and other industrial equipment that will help manufacturers boost production.
The Irish chamber will host Ireland’s Ambassador to the U.S., Michael Collins, at its monthly luncheon on Tuesday, Feb. 9.
Visit http://www.iccusaatlanta.com/ for more information and to RSVP.