The financial bust may be past, but its legacy will hold down growth across the developed world for some years. That was the central message of an International Monetary Fund study published yesterday, which warned that the “speed limits” – the maximum rates at which can safely grow – have been cut significantly, mainly due to low investment levels through the crisis and ageing populations.

The result is mixed news for Ireland. It suggests growth in our main export markets of the United States, United Kingdom and continental Europe could well remain subdued for some years to come. To beat this sluggish average – as we are at the moment with growth of 3.5 per cent plus – we will have to continue to win an increased share of these big markets, while also tapping into faster- growing emerging markets.

Low interest rates

However, sluggish euro zone growth has one significant bonus for us: low interest rates. The IMF report, an early extract from its updated forecasts to be published next week, says interest rates are now set to remain low for some time. Even in the US, expectations of a rate increase later this year are now being questioned, due to some weaker economic indicators, notably the March jobs report. For Ireland, with a continued need to raise borrowings this is welcome, as it is for indebted households and firms.

The report says lower potential growth in the advanced economies reflects a big fall-off in investment during the slump, as well as ageing populations, where a lower percentage of the workforce is available for work. Ireland’s population structure, while ageing, remains relatively favourable internationally.

However, the IMF study shows that we suffered one of the worst fall-offs in business investment during the slump, as demand collapsed across the economy. For the future, the IMF suggests that rebuilding private and public investment levels should be a priority. It is also carries another warning for Ireland.

Caution

in public finances If low growth is now the “

new reality”, as the IMF calls it, our growth rate could slow, too, once the bounceback from the recession is over. This suggests caution in planning the public finances. There will be a big difference in the budgets to come if growth here slows to , say, 1.5 to 2 per cent, rather than the 3.5 per cent we are expecting.