Bloxham lowers economic forecast

Bloxham Stockbrokers has lowered its forecast for Irish economic growth next year.

In its latest quarterly economic outlook, Bloxham predicts GDP will rise by 2.5 per cent as opposed to 3.5 per cent forecast previously.

"The Irish economic outlook remains clouded in uncertainty," Bloxham's chief economist Alan McQuaid said. "With the latest US economic indicators clearly showing that the world's largest economy is slowing down, this doesn't augur well for the economic picture here at home.

"Still, a strong export performance (particularly on the services side) helped by the depreciation of the euro against both the dollar and sterling in 2010 should see average Irish real GDP growth coming in at around 1 per cent this year."

The outlook predicts that personal spending behaviour is likely to remain "somewhat restrained" over the coming months, with tighter conditions for consumer credit and higher interest rates leading households to pay down debt.

It says the implementation of further tough fiscal austerity measures in the budget will only do "more harm than good" to the economy in 2011 unless it includes consumer stimulus measures to replace the car scrappage scheme.

"Irrespective of what happens on the banking side, the Government will need to deliver another tough Budget come year-end, but the fragility of the economic recovery should be a clear warning sign to the coalition partners that increasing the personal tax burden further at this juncture runs the serious risk of pushing the economy backwards again" said Mr McQuaid.

"The main focus should in our view be on more expenditure cuts (current and capital) and on selling some State assets. But, the Government should also resist the temptation to deliver more than the promised €3 billion in savings in the mis-guided belief that this will appease the markets.

Bloxham believes Ireland, like other countries such as China and the UK, is experiencing a "pause in the recovery process" rather than the start of another significant economic downturn.

However, it criticises the Government for "fixating" on Anglo Irish Bank.

"[The Cabinet] is in real danger of taking its eye off the ball particularly in relation to addressing the unemployment problem, and getting as many people back to work as soon as possible. Unless unemployment falls and consumer confidence picks up, personal spending will remain constrained, which in turn will hamper GDP growth and put more strain on the underlying budgetary position."

In terms of employment, Bloxham predicts unemployment will hit between 14 and 14.5 per cent next year.

"A pick-up in the labour market tends to lag recovery in output/GDP by six to nine months, but with the recovery now running out of steam, any improvement in job prospects is likely to be delayed.

"Further losses in the construction, financial services and retail sectors seem inevitable over the next few months. All in all, it now looks like the jobless rate will hit 14 per cent before the year is out, and will peak somewhere between 14 per cent and 14.5 per cent next year, but with the risks now tilted back to the upside."