It doesn’t take long when travelling in Ireland to appreciate the virtues of contrarian analysis. That’s because it’s hard to find traces of the economy that was nearly given up for dead during the 2008 Global Financial Crisis (GFC). Fifteen years later there are lines outside most stores, and not just in areas frequented by tourists. Restaurants require reservations and pubs are packed.
How times change. Ireland’s economy was in such bad shape 15 years ago, saddled with seemingly insurmountable levels of sovereign debt, that the country was added to that group of four southern European countries whose economies were already basket cases — Portugal, Italy, Greece and Spain. There’s more than just anecdotal evidence of Ireland’s turnaround. Unemployment is the lowest it’s been since the early 2000s. Since the first quarter of 2009, the country’s real GDP has grown at an annualized pace of 6.3%. In comparison, U.S. GDP growth has been anemic, as you can see from the accompanying chart.
Ireland’s stunning growth in recent years came in the wake of many bad years leading up to and including the GFC. But that’s precisely the point that contrarians make: Bad times don’t last forever, just as trees don’t grow to the sky. This reversion-to-the-mean story implies that Ireland’s economy won’t grow as fast in coming years as it has since 2009. The average (mean) inflation-adjusted growth rate for Eurozone economies over the past three decades has been 1.5% annualized. Reversion to the mean suggests that the yearly growth rate of Ireland’s economy over the next 15 years will be closer to that rate than 6.4% annualized. That doesn’t mean Ireland’s economy will grow more slowly in coming years than the U.S. economy. U.S. GDP growth since the GFC has been slightly below its long-term average, but not by enough for a reversion-to-the-mean prediction of a much higher growth rate in coming years. Contrarians are therefore inclined to predict that both economies will grow at simila …
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