Unemployment to hit 17% - ESRI


Unemployment in Ireland will rise to almost 17 per cent next year, the Economic and Social Research Institute (ESRI) says in a report published today.

The ESRI forecast that Ireland will experience the sharpest fall in economic growth of any industrialised country since the Great Depression.

The institute said it expects the average number of jobs in the economy to fall by 187,300 this year as against last year. It expects to see the number of people unemployed averaging 292,200 this year, making for an average unemployment rate of 13.2 per cent.

It also believes a further 102,800 jobs will be lost next year pushing the unemployment rate to 16.8 per cent.

The institute’s spring quarterly economic commentary estimates that gross national product (GNP) will fall by 9.2 per cent this year.

“Our forecasts suggest that Ireland’s economy will contract by around 14 per cent over the three years 2008 to 2010. By historic and international standards this is a truly dramatic development.

“Prior to this the largest decline for an industrialised country since the 1930s had been in Finland, where real gross domestic product declined by 11 per cent between 1990 and 1993,” according to the ESRI.

One of the authors of the ESRI's report, Dr Alan Barrett, said the “severe recession” was due to Ireland being a very exposed economy in the midst of a global downturn while at the same time having allowed housing and construction generally to have become too large a part of its domestic economy.

The institute believes there may be net annual emigration of approximately 30,000 in the years to April 2009 and April 2010.

The institute says the Government’s recent budgets have been broadly positive in effect and were important moves in the restoration of fiscal sustainability.

It expects a general Government deficit of 12 per cent of economic output (gross domestic product or GDP) this year, and 11.5 per cent next year. Net Government debt is expected to be more than 55 per cent of GDP by next year. The forecasts released by the ESRI do not take into account the cost to the State of buying toxic assets from the banks by way of the National Asset Management Agency. This transaction will add a substantial but as yet unknown amount to Government debt and to the State’s annual interest bill.

The institute believes that the balance of future fiscal adjustments should move to cutting public expenditure, especially current expenditure, as against focusing on tax increases. On tax increases, it says taxes on property and carbon would be preferable to income tax increases.

The commentary includes an analysis of the distributional impacts of the October and April budgets which it estimates will reduce household income by approximately 4 per cent on average.

It says the budgets will be “strongly redistributive with income gains for those with the lowest incomes and the percentage losses rising with income”.

While those on the lowest incomes will see gains of close to 5 per cent, average losses for the middle and upper income groups range from 2.5 to more than 7 per cent, according to the analysis.

“Shifts of this magnitude take place rarely and usually over a sequence of budgets: the magnitude of these shifts in a single budget has few if any precedents.”

Taking the public sector pension levy as a pay cut, the institute expects wages generally to fall by 3 per cent in nominal terms in 2009, noting that “declines in nominal wages are not often observed, even in recessionary times”.

Dr Barrett said that being competitive remains the key to Ireland’s recovery and that wage falls are vital to the restoration of competitiveness.

Income tax increases tended to prompt demands for pay increases, and this affected competitiveness.