Outlook for Irish economy ‘challenging but positive’

Dysfunctional banking system is biggest threat, Friends First economist warns

Friends First chief economist Jim Powerwarned that early signs of recovery in the Dublin property market are not reflective of the country as a whole. Photograph: Eric Luke/The Irish Times

Friends First chief economist Jim Powerwarned that early signs of recovery in the Dublin property market are not reflective of the country as a whole. Photograph: Eric Luke/The Irish Times

Tue, Nov 12, 2013, 13:40

A dysfunctional banking system, a possible need for further capital for the sector, and dangerous levels of sovereign and personal debt are among the biggest risks to economic recovery in Ireland, the latest Friends First Economic Outlook has warned.

Frailty of the euro zone banking system and tight credit conditions are the biggest external threats to recovery, the report from the life assurance company said.

The publication anticipates an increase in GDP growth from 0.3 per cent in 2013 to 2.1 per cent in 2014, as well as a fall in unemployment from 13.3 per cent this year to 12.5 per cent next year.

The company’s chief economist Jim Power said that while the outlook for the Irish economy remains challenging, the country is experiencing a “modest recovery”, and the forecast was more positive than it has been since 2008.

“The external environment is improving and provided policy makers continue to apply the appropriate stimulus, a gradual external recovery is now on the cards,” he said.

Speaking today in Dublin, Mr Power said the credit freeze facing small and medium sized businesses is a “major source of concern”, as the country needs the SME sector to expand if the economy is to recover.

He also warned that early signs of recovery in the Dublin property market are not reflective of the country as a whole, and “are now being exploited by some with an interest in talking up the market”.

“Real caution is now required before we talk ourselves into another bubble,” he said. “Let us not repeat the mistakes of the past.”

Mr Power also warned of a “very long and torturous path ahead” for those involved in dealing with the mortgage arrears crisis.

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