Ireland's economy will not return to growth until the second half of 2010 despite an improved outlook, a report said today.
The NCB economic activity index indicated that the economy contracted at an annualised rate of 6 per cent in May. This compares to a seasonally adjusted rate of 12 per cent in February, signalling a possible improvement in the economy.
The report said while it was positive that the end of the cyclical decline is in sight, only a modest recovery was expected in economic growth in the medium term.
The firm's PMI-based growth indicator is also well off its lows, NCB said, and continued to rise in June and July.
The annual forecasts for 2009 and 2010 have been upgraded from -8.1 per cent and -3.1 per cent respectively to 7.6 per cent and 2 per cent. This is due to better-than-expected data from advanced economies and an improved global outlook.
However, NCB increased Government deficit and debt to GDP forecasts due to a larger than previously expected decline in the nominal value of the domestic economy. The Government deficit to GDP is expected to be -12.2 in 2009 and -11.9 per cent in 2010, while debt to GDP - excluding Nama - is estimated at 62.5 per cent for this year and 77.7 per cent in 2010.
Despite the improved outlook, the economy is still expected to dip in the first half of next year, before sustainable growth resumes in the second half of the year. A modest annual growth of 1.7 per cent is predicted in 2011.
"The improvement in the economy is seen as largely being driven by the contribution from net exports," the research note said.
"Our view on the domestic part of the Irish economy is little changed -consumption will be weighed down by taxes, wage cuts, employment declines; investment will continue to be weighed down by oversupply in the residential and construction markets; and government spending will continue to be curtailed to keep the budget deficit under control."