GDP to contract 1% in 2010

Ireland's gross domestic product (GDP) will contract by 1 per cent in 2010, a new economic forecast has said, amid mounting evidence that both the Irish and international economies are showing signs of recovery.

The report from Bloxham stockbrokers said the average fall in real GDP for 2009 would be in the region of 7.2 per cent, but would narrow to 1 per cent next year, before showing growth in 2011.

Gross national product (GNP) will contract by 3 per cent in 2010, compared to  a drop of 10.2 per cent this year.

"The Irish economy has faced extremely difficult conditions over the past couple of years and is headed for the second year of contraction in 2009. However, following an exceptionally weak first half of the year, there are clear signs of a moderation in the rate of decline in activity in the second half of the year both internationally and domestically," the report said.

"Recent Irish indicators suggest that the worst of the downturn is over, but how soon the economy recovers remains open to debate."

Exports will drive growth in the Irish economy, Bloxham predicted, as increased global demand filters through to the economy.

Unemployment is set to rise to 12.8 per cent next year, but is unlikely to go above 13 per cent, the report said. It is expected to return to 11.7 per cent in 2011.

The report predicted long-term unemployment benefit would be cut in the forthcoming Budget on December 9th, along with child benefit. However, old age pensions are expected to remain untouched.

Consumer spending is predicted to contract by 2 per cent compared to a fall of 7.3 per cent in 2009. However, the improvement is dependent on the Government leaving income taxes alone in the Budget, focusing instead on spending cuts.

Deflation will also ease next year, falling from the average rate of -4.5 per cent to -0.2 per cent.