ESRI revises growth forecast down

THINK TANK:THE ECONOMIC and Social Research Institute has cut its growth forecasts for the Irish economy in 2011-12. Although it says in its latest quarterly assessment that the economy will grow more strongly than the Government expects, it will not be enough to bring down the rate of unemployment.

It also makes a series of policy recommendations, including advocating a budget adjustment of up to €4 billion in 2012.

While welcoming the improved EU bailout terms agreed on July 21st in Brussels, the report notes that rescuing bank investors has been of benefit to the wider euro area as it has contained contagion to other countries’ banks. Despite this, the burden has fallen entirely on Irish taxpayers and the ESRI believes the Government should continue to seek a sharing of this burden from its EU partners.

The report also welcomed the post-July 21st intervention of the European Central Bank in buying the bonds of weak governments, which has helped lower their effective cost of borrowing. However, it said “the policy shift needs a strategic underpinning, rather than a grudging acceptance of an unwanted role”.

Reflecting the large cut in the interest rate charged on EU bailout funds agreed in July and the lower than previously estimated bank rescue costs, the institute believes public debt will peak at a lower level than it did in its last report. In 2012, public debt is expected to reach 109 per cent of GDP, rather than the 116 per cent the think tank anticipated three months ago.

Overall, the ESRI’s expected rate of growth in gross domestic product (GDP), at 1.8 per cent, is the highest among the main forecasting bodies by a considerable distance, but it represents a downward revision on the institute’s last forecast, when it predicted an increase of 2 per cent this year.

It has also revised down its 2011 forecast for gross national product (GNP), a narrower measure of economic activity, from 0.5 per cent to just 0.2 per cent.

The think tank’s downgrade of the outlook for 2012 is much larger.

In just three months the ESRI has slashed its GNP forecast for next year, from growth of 2 per cent to just 0.7 per cent.