Jobless rate of 14.4% not likely to fall by year end
THE CENTRAL Bank expects the rate of unemployment to remain unchanged this year, before dropping slightly in 2013.
In its second quarterly economic bulletin of the year, the bank said unemployment was likely to be 14.4 per cent at the end of this year, lower than its forecast of 14.6 per cent three months ago.
The revision to the forecast was attributed to even larger numbers leaving the labour force, which suggests more people will return to education or emigrate.
The unemployment rate is forecast to fall to 14 per cent next year “on the foot of modest employment growth”.
The bulletin marks the first occasion in some time that the bank has not grown more pessimistic about the prospects for the economy. It has kept its gross domestic product growth forecast for 2012 at 0.5 per cent. Its forecast of growth of 2.1 per cent in 2013 is also unchanged.
While the bank’s forecasts for a narrower measure of economic activity, gross national product, are lower – at -0.7 per cent in 2012 and 1 per cent in 2013 – they are also unchanged on three months ago.
Assessing public finances, the bank said it appeared targets for the year were on course to be met and that “no overall adjustment to the scale of the fiscal measures announced in the budget seems to be required at this time”.
Reacting to global economic conditions, the bank’s economists described a “limited improvement” in the external environment as the crisis in the euro area calms.
The European Central Bank had played “some” role in calming the crisis, it said, mostly by providing longer-term liquidity to the banking system. In December and February, the ECB offered unlimited three-year loans to banks. More the €1 trillion was borrowed.
Underlying inflation will remain subdued, reflecting continued weak disposable incomes and cautious spending, it noted.
The annual rate of harmonised index of consumer prices is projected to be 1.5 per cent, representing a downward revision from the Central Bank’s previous bulletin and mainly reflecting a weaker than anticipated pass-through of the increase in the standard VAT rate.
The bulletin said competitiveness had improved substantially since the onset of the crisis, but on most measures it had not yet returned to the levels obtained in the early part of the last decade.
“The levels of relative unit labour costs and prices within the economy overshot sustainable levels during the boom years,” the bulletin stated, but these were now adjusting. This was a necessary process to restore growth and, indeed, much of the required adjustment had taken place, it noted.
The bank repeated its calls for the liberalisation of closed services and reform of the public sector.
“If the challenges in these areas are met then the prospects are good for a further strengthening of the economy’s competitiveness position and its trading performance.”
Such developments would encourage a great pick-up in growth and permit a steady reduction in unemployment.