Following the Irish governments proposed deep spending cuts, the central bank has more than halved the growth forecast for the Irish economy as employment cuts continue, higher taxes hurt consumer spending and exports slow down.
The bank’s quarterly forecast published today pegs the country’s annual economic growth at 1 percent from the 2.3 percent it had projected in its October report.
Ireland had availed a €85 billion bail-out package from the EU emergency rescue fund and the IMF after its property market crashed and banks failed – pushing borrowing costs up at unacceptable levels.
In its report latest report the bank said it factors in the “significant downward revision” due to fiscal adjustments with savings of €6 billion for the December budget, twice the amount previously envisaged in the October 2010 report.
The Irish department of finance had projected an economic growth of 1.7 percent for 2011. The government hopes a much stronger growth of 2.3 percent for the 2012.
The latest report estimates that the Gross National Product (GNP), which excludes profits earned by foreign multinationals operating in Ireland and is often considered a better metric of the economic growth, will contract by 0.3 percent this year before expanding by 1.5 percent in 2012.
Growth is “likely to be largely confined to the export sector in 2011”, the report says. Although the country’s traditional export markets will slow down in 2011, “it will still be sufficient to support relatively strong export growth”, the report adds.
The country’s domestic demand is expected to be subdued on the back of lower consumption due to higher personal taxes and lower rate of employment. However, the country’s export sector has seen increasing contributions from the services segment as companies like Google and Facebook running huge operations in Dublin.
The report estimates unemployment to be around 13.7 percent for the year and remain over 13 percent for 2012. ““The beginnings of a turnaround in employment levels cannot be expected until later this year”, the report says.
With the funding from EU-IMF available for withdrawal, “a window of time in which to convince international markets that its fiscal adjustment is well under control, that risks in the banking system are contained and the banks’ balance sheets scaled down, and that the economy’s competitiveness improvements have been consolidated”, the bank concluded.