Ibec expects GDP to grow by 1 per cent this year

Tue, May 8, 2012, 01:00

THE REPUBLIC’S economy will grow by 1 per cent this year, while a Yes vote in the fiscal treaty referendum will boost corporates’ ability to raise cash from international markets, according to business lobby group Ibec.

Ibec’s Quarterly Economic Outlook, which is published today, says that gross domestic product (GDP) – a measure of all the wealth generated in the Republic – grew last year for the first time since 2007.

The organisation says it is expecting a similar performance this year. “We expect GDP to grow by 1 per cent in 2012, with momentum gathering a little as the year progresses,” Ibec chief economist Fergal O’Brien says.

However, he warns that the domestic economy remains fragile, and reduced incomes and poor confidence will mean consumer spending will fall by a further 2 per cent this year.

Mr O’Brien expects investment in construction to fall by 10 per cent, but he believes that businesses will increase their spending on plant and machinery this year by 10 per cent, helping to offset the continued decline in building.

He argues that exporters will need to invest in plant and machinery this year as the strong growth in sales of goods and services overseas has left them with limited spare capacity.

On the jobs front, Mr O’Brien predicts that the numbers at work will fall by 0.2 per cent this year, largely as a result of cuts in the public sector and banking. He says employment should grow by a modest 0.6 per cent in 2013.

Mr O’Brien also warns that the result of the fiscal treaty referendum on May 31st will have a direct impact on the economy.

“A Yes vote is crucial to our future economic prospects. The treaty will provide a better set of rules for the public finances and help ensure that Ireland remains an attractive location for investment.

“Crucially, from a business perspective, it will make it easier for Irish corporates to raise funding in international debt markets.”

Mr O’Brien also argues that the treaty should not result in any further austerity measures.

He says while the shortfall in public finances allowed by the treaty is 0.5 per cent, compared to the 3.5 per cent that the Republic is predicted to have in 2015, the Government will not have to close this gap overnight. Instead, it will be able to negotiate a transition with the EU. He also argues that the Republic would ultimately have to meet this target with or without a treaty.