Central Bank expects growth, no jobs

A RETURN to growth in the economy later this year will not result in job creation in the near future, the Central Bank said yesterday.

Ireland’s unemployment rate will peak at about 14 per cent this year, but the average rate will remain above 13 per cent in 2011, the Central Bank said in its quarterly economic bulletin.

The number of people employed in Ireland will fall almost 4 per cent this year, with a further 0.5 per cent decline expected in 2011, it said.

Although the economy is likely to start growing on a quarterly basis in 2010, it is expected to decline over the year as a whole.

Gross domestic product (GDP) is projected to fall by 0.5 per cent this year, compared to a 7 per cent decline in 2009.

Gross national product (GNP), which excludes profits made by multinational companies based in Ireland, will decline by 1.5 per cent in 2010, compared to a precipitous fall of 11.3 per cent last year.

The Central Bank painted a brighter picture for 2011, predicting that GDP would rise by 2.8 per cent and GNP by 2.4 per cent.

Taoiseach Brian Cowen said that the Central Bank’s forecasts demonstrated that the economy was “turning a corner”.

He said the report was a good reflection of what he described as the Government’s tough budgetary strategy.

“What we are seeing is as a result of the decisive action, the external confidence in the Government’s direction, is that our borrowing costs are much lower than other countries who have not taken these steps,” the Taoiseach said. “It also provides an opportunity for us to build confidence internally in the country.”

On the question of the Central Bank’s prediction that the economy will experience a jobless recovery until the end of 2011, he said: “If we had not taken the decisions, there would have been more job losses.”

Fine Gael’s deputy finance spokesman Kieran O’Donnell said that a meaningful recovery was not possible unless proper jobs were created. “The Central Bank has highlighted Ireland’s continuing unemployment crisis and the need to bring down prices in order to significantly improve competitiveness in the overall economy,” he said.

Meanwhile, Central Bank official Maurice McGuire noted that the premium on borrowing being paid by the Government over and above benchmark German rates had remained stable in recent months, despite an escalation in borrowing costs for other EU countries.

Mr McGuire said there had been no signs of “contagion” for the Irish economy as a result of the Greek crisis, but that the situation emphasised “the need for us to stick to our adjustment plans”.

The Government should “broadly state” what additional measures they would take if economic activity turns out to be lower than projected, he added.

The Central Bank’s caution echoes a recent warning by the European Commission, which told the Government in March that its economic recovery plan was based on growth assumptions that were “on the optimistic side”.