Economic forecasts 'over optimistic'

The latest Department of Finance economic forecasts are over-optimistic, according to the Economist Intelligence Unit.

The British economic research and publishing house has predicted that Irish Gross Domestic Product will grow by 5.9 per cent this year compared to the Department of Finance's revised forecast of 7.2 per cent.

The forecast is made in the EAU's annual Country Report for Ireland, which was published this week. The unit has taken a more bearish stance than most Irish observers and the Department, which released its revised forecast for 2001 this week. The Department's new forecast, down from its Budget day estimate of 8.8 per cent, is in the mid-range of independent forecasts.

The EAU points to problems on both the supply and demand side of the economy. The rapid expansion of the workhorse is decelerating while "international economic uncertainty and lower levels of confidence domestically are causing a cooling of growth".

The EIU believes that the slowdown in the US economy will hamper export growth and also investment in Ireland by US companies. The EIU's forecast for year-end unemployment, inflation and the Government surplus are close to the revised Department of Finance estimates published this week in its Economic Review and Outlook 2001. The EIU predicts unemployment will be 3.7 per cent, slightly higher than the Department's forecast of 3.6 per cent, and that inflation will be 4.9 per cent.

The Department is predicting that the Consumer Price Index will have risen by 5 per cent by the end of the year. The surplus on the General Government Balance will be 3.4 per cent of GDP according to the EIU, slightly less than the 3.7 per cent predicted by the Department.