Mr. John McCarthy:

It is not an issue just yet in Ireland. It is a phenomenon of advanced economies. The euro area and the US are good examples. We are seeing very weak productivity growth. In the past, productivity in advanced economies was 1.5% to 2%. Over the past couple of years it has been less than 1%. This is not cyclical. It has been there for a number of years. Then there is this slow-burning issue of ageing populations. We all know there was a baby boom in the US from the 1940s to the 1960s. They are now coming towards retirement age. The same is the case in many euro area countries. For instance, the German population, leaving aside migration, is declining and the working-age population is shrinking. All these factors impact on the capacity of the economy to grow. We are at a slightly different stage in the sense that we still have a relatively young population, we still have labour force growth and our productivity numbers are highly volatile on a year-to-year basis but are still, on an underlying basis, reasonably strong.

However, there is this problem of growth consistently underperforming expectations. That happens on a one-year or maybe two-year basis and is not something to worry about. Since we have seen growth disappointing pretty much every year since the financial crisis, economic agents are saying that perhaps the outlook is weaker than they had thought. They are reassessing their projections for where the world economy will be, and if demand is likely to be weaker, there will not be as much investment as they thought there would be.

Without investment, an economy cannot grow so it becomes self-fulfilling. This is an issue for some advanced economies and one about which Larry Summers, a well-known economist, has written. To answer the Deputy's question, while I do not believe it is an issue for Ireland just now, if our main trading partners suffer very weak growth and this becomes a permanent phenomenon, we will simply not be able to export as much. Therefore, It could have spill-over effects here.