In September, Stephen Kinsella sat down with Philip Lane, the former governor of the Central Bank of Ireland and the current chief economist of the European Central Bank. 

Lane, a former economics professor at Trinity, speaks in an understated, academic manner, but his words carry significant clout. After all, they can move markets. So, Lane tends to pick them judiciously.  

The interview with Stephen covered a lot of ground, from the spike in prices that followed Covid-19 and the war in Ukraine to how Europe can escape an inflation spiral. 

But a key narrative from the conversation was the significance of the decade we are living through. 

“We’ve had the pandemic, we’ve got the war, but we have a lot of other things going on. We have geopolitical fragmentation as a risk, we have the green transition… We also have demographic transitions and so on,” he said, adding: “The 2020s is one of these big decades.”

The latter phrase cropped up last week in a conversation I had with Stephen about the outlook for next year. The way Stephen sees it, if this is a “big decade”, then 2023 is the “bend in the knee” of the ten-year period.  

And he is not wrong. Take the past month alone.

At the beginning of December, the markets were factoring in three interest rate cuts by the Federal Reserve in 2024. As of now, the number has increased to six.

The bond markets have had their best month in a decade; those working on bond desks will be going home for Christmas with big smiles and bigger bonuses. The bond is back. Equities are flying. There is a sense that inflation is under control, thankfully.

The series of anticipated interest rate cuts will next year assist both businesses and consumers. 

It begs a question: Are we on the cusp of seeing some form of “normality” return to the thorny issue of monetary policy?

With inflation moderating and now below previous targets, there is a feeling that the central bankers have done their job, even if the means of getting there were somewhat crude. But, based on the forecasts, the economic outlook looks positive. 

This new normal can, and will, create opportunities for the Irish government next year. The cost of capital will decrease, while growth should be stimulated. It represents a chance for the state to invest further in capital projects, education provision, and the apparatus of the State itself.

At this stage, even Ibec is arguing for the state to get bigger, and to try and bridge the infrastructure gap between our balance sheet wealth and the services that underpin the State. We need to invest. But we need to invest smartly.

A stable monetary policy should, in part, facilitate that investment.

There are worries also. We have seen a wave of geopolitical shocks in recent years. They have caused significant disruption to supply chains and commerce, but businesses have responded to those shocks.

However, if China invades Taiwan, all bets are off. That would be devastating for the people of Taiwan, but it would also be a global game-changer. It would fundamentally change the global geopolitical order, upend key supply chains, and raise significant tensions across the planet.

A Trump election win in the US would have an impact, particularly in an Ireland which has hitched its wagon to the US FDI industrial model. Trump’s first-term reforms led to a glut of capital exiting Ireland, and being repatriated back to the US – but then largely coming back to these shores in the form of intellectual property assets. Unshackled by the burden of ever having to run again, and also buoyed by a second term, Trump’s reforms could go much deeper and lead to a further flight of capital, and potentially jobs.  

An election looms in Ireland also, although it seems the current coalition is determined to see out its full term until the start of 2025. But, as that election approaches, it is crucial that the sitting government does not engage in election politics. 

Budget 2024 went beyond what most economists, and the Fiscal Advisory Council, thought prudent. It is imperative that the government does not go further and try to out Sinn Fein Sinn Fein. 

I put this to the Minister for Finance Michael McGrath in his post-budget interview with The Currency. His response was informative, drawing the link between balancing the books and maintaining a form of social cohesion and a sense of societal progress. 

“I respect all of the advice that we’ve received from a whole range of bodies. But our remit is wider than having just an economic responsibility. We have to run a country. We have to be very much alive to the needs of society. And we have to protect social cohesion. We have to bring people with us. What we’ve experienced is exceptional in nature. We haven’t had inflation such as what we’ve experienced in the last 12 to 18 months for 40 years. And so the response has been exceptional.”

However, in the event that the world normalises and becomes less “exceptional”, Ireland’s fiscal response must become more normalised and less exceptional. 

There are both opportunities and challenges facing us in 2024. Let’s hope for more of the former and less of the latter. 

*****

Elsewhere last week, Rosanna turned her attention to Klarna, the scaling buy-now-pay-later business. Klarna is back turning a profit after four years in the red, and Colin Creagh, the company’s top man in Ireland, talked to her about the  future of the model, and Klarna’s ultimate goal of being a truly global bank.

Oisin Hanrahan built and sold Handy and ran the Nasdaq-listed Angi. Now he’s back in start-up mode with Keychain and is trying to solve the outsourcing woes of brands and manufacturers. He chatted with Jonathan.

Peter made the case for a new national savings scheme, arguing that it could kickstart a virtuous circle of compounding returns for Irish citizens, while at the same time providing vital funding for the Irish start-up scene. “The spin-offs from such a scheme are enormous and it would create several positive externalities. An entire generation of Irish savers could participate in and benefit from successful Irish start-ups,” he wrote. 

Ireland’s cut-and-come-again plantation forestry model has long faced criticism over its environmental record. Now, with farmers turning away in their droves, the State is looking at an ever bigger headache as planting rates fall off a cliff. Niall looked into the story – and he will be returning to it in the weeks ahead.

From RDJ’s new headquarters in Cork, the law firm’s boss Jamie Olden talked to Francesca about opportunity and explained why 2024 will be a tough year for hospitality and commercial property.

Thomas, meanwhile, looked at the Irish start-ups aiming to build the Netflix and Airbnb of motoring. DC EV is turning the leap of going electric into a no-strings-attached monthly subscription, while GoPlugable lets neighbours share their home chargers for money. Both are ready to launch.

Finally, a very Happy Christmas from all the team at The Currency, and thanks for all your support over the past 12 months.