Economy to stay in downturn until 2010, says OECD

THE IRISH economy will not return to growth until 2010, the Organisation for Economic Co-Operation and Development (OECD) forecasts in its latest Economic Outlook, published yesterday.

The Paris-based think-tank is forecasting a fall of 1.8 per cent in real Gross Domestic Product (GDP) this year as the "severe housing market correction" weakens the wider economy.

And it no longer expects a rebound next year, projecting a 1.7 per cent decline in GDP for 2009 "as the housing construction cycle bottoms out and the financial turmoil wanes".

It does anticipate modest growth of 2.6 per cent in 2010 but says this will be insufficient to stop the average annual unemployment rate rising from 7.7 per cent in 2009 to 7.8 per cent in 2010.

These projections are far higher than the OECD's forecasts from last June when it said unemployment would average at 6.5 per cent next year.

The figures come as the OECD says the US and the euro zone are set for four consecutive quarters of contracting output.

"Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s," the think-tank for the 30 richest countries said in its outlook.

It said the uncertainties associated with its latest forecast were "exceptionally large". The most significant relate to the speed at which the financial markets crisis, which the OECD regards as the prime driver of the downturn, is overcome.

Recent OECD research has drawn attention to the greater severity of economic downturns precipitated by a financial crisis, as has been the case for the past year. In pinpointing countries to suffer a severe downturn, in addition to the UK, the OECD lists Hungary, Iceland, Ireland, Spain and Turkey. The financial crisis is not the only driver of the projections. Others include housing market adjustments, which come on top of falling equities markets.

In Ireland, the OECD anticipates the underlying inflation rate - which excludes mortgage interest - will fall sharply next year to 0.9 per cent, down from an average of 3.1 per cent this year.