Bloxham cuts economic forecast

Bloxham Stockbrokers has cut its forecast for the Irish economy next year as the global slowdown hits growth.

Analysts expect to see positive growth in the Irish economy in 2011, predicting a 0.8 per cent rise in gross domestic product, but the projection for next year has been reduced to 1.5 per cent from a previous prediction of 2 per cent. That growth rate is similar to the UK and the wider euro zone average.

"We remain hopeful that after three successive years of contraction the Irish economy will return to positive GDP growth in 2011 followed by stronger output over the next couple of years all things being equal," chief economist Alan McQuaid said.

The report said growth in the second half of the year in the economy would likely be slower than the 1.3 per cent recorded in the first half of 2011.

Irish exports are expected to increase by 4.5 per cent this year, but this rate is expected to slow to 3.2 per cent in 2012.

Despite the slowdown in the global economy, Mr McQuaid said Ireland would still meet its budget targets this year.

But he warned that the domestic economy was still weak, and a turnaround in private demand would be needed to reach the annual growth rates necessary to have a significant impact on the country's debt burden.

Consumer spending is expected to fall by 2.3 per cent this year, and remain flat in 2012. Total domestic demand will slip by 4 per cent in 2011, before recovering slightly in 2012, when it is expected to contract by 1.1 per cent.

The report said getting consumers back to spending, and weaning them off their savings, was essential to helping the economy return to "significant traction" over the next few years.

"Still, the signs are that the country is heading in the right direction, and despite some setbacks remains well positioned to get out of its financial mess and move forward over the next few years," Mr McQuaid said. 

The report predicted unemployment would peak at 14.5 per cent, with an average rate of 14. 2 per cent in 2011 and 14 per cent in 2012.

"The labour market remains very weak, and things are likely to get worse before they get better," Mr McQuaid said.

Further falls in house prices are also on the cards, the report warned, given the weak labour market and availability of credit from banks.

"The short-term risks to house prices remain to the downside and it would be no great surprise if the level of decline was greater than analysts' expectations over the next 12 months or so," the report said.

"Given weak labour market conditions and the continuing lack of available bank credit it is hard to be optimistic on the prospects for the property market in the im-mediate future. But looking further ahead, we think house prices should increase on a five-year view as the labour market improves.

"That said, the level of any rise over the next few years is only likely to be in low single digits as banks adopt a more cautious stance to lending than in the "'Celtic Tiger' era, interest rates return to 'normal' and the introduction of a property tax for 'principal' homes of residence all weigh negatively on the market."