TWO new economic reports back the ESRI’s view that the economy is close to, or in a recession, — but Dublin and Cork’s micro- economies will avoid recession.
Ulster Bank says the economy will go into recession this year as it declines by 0.3%, slightly less than the ESRI’s forecast of a 0.4% fall in real growth in 2008.
National Irish Bank, one of the most bullish on the economy at the start of the year has slashed its growth forecast from 4% in January to 1%.
The figure could be lower and the bank’s chief economist, Ronnie O’Toole says either way it "will feel very much like a recession".
"The economy is now facing into a significant hard landing" as a result of the sharp loss of confidence among consumers, he said.
The first half of 2008 saw a rapid deterioration in the economy as "consumers went on strike in April", he said.
The net impact will see unemployment rise to 7% from 6% in 2008 and 4.6% in 2007.
Long term unemployment will hit 45,000 by 2010, from 28,000.
The economy will create between 10,000 and 20,000, well down on NIB’s earlier forecast of 40,000, said O’Toole.
He warned the minimum wage, one of the highest in Europe, could prove a barrier to future job creation as employers, faced with slow growth and rising costs, refuse to take on new staff.
Aspects of the economy remain solid.
Exports will grow 4.5% in 2008 and by 5% next year but will be well short of the 6.8% achieved last year when the global economy was still buoyant, said O’Toole.
Ireland will also continue to benefit from the inflow of foreign direct investment with a breakdown roughly 60/40 in favour of services over manufacturing.
As the economy eases back Dublin and Cork will avoid the slowdown and achieve growth of around 2% in their local economies.
The greatest impact of the slowdown will be felt in the border, midlands, west and the south-east, where house building played a key part in the growth story, he said.
O’Toole said the most critical issue in the changed economic circumstances will be pay restraint in the public sector.
While welcoming the recently announced Government cutbacks to save €450m, O’Toole said the current pay talks "is potentially the most important since the inaugural pay agreement in the late 1980s".
Public sector pay cutbacks will be crucial in "returning order to the Government’s finances".
Ulster Bank has lowered its growth forecast for this year, saying the domestic and international outlooks have deteriorated significantly in recent months.
GNP will fall 0.3% this year but it will return to growth of 0.5% in 2009.
Given the weakening economic outlook Ulster says it expects further falls, leading to a 9% drop for the year as a whole.
It puts consumer spending at 1.5% this year against 2% for NIB and it has raised its forecast for house completions this year slightly to 44,000, slightly ahead of NIB’s 40,000 figure for the year.
a d v e r t i s e m e n t
This appeared in the printed version of the Irish Examiner Thursday, July 10, 2008
