Central Bank forecasts economic decline of 0.3%
THE CENTRAL Bank of Ireland has lowered its economic forecast marginally for the year, predicting that gross national product, which excludes repatriated profits of multinational firms, would decline by about 0.3 per cent in 2011.
This is down slightly on its April quarterly bulletin, when it said GNP would be identical to the 2010 level.
It has also downgraded its gross domestic product (GDP) forecast for 2011 by a 10th of a percentage point, to 0.8 per cent.
The bank, which published its quarterly bulletin yesterday, says it expects the economy to strengthen in 2012, with GDP forecast to expand by 2.1 per cent and a rise of 1 per cent in GNP.
It predicts that exports will increase by 6.4 per cent this year and by 6.2 per cent in 2012, as external demand moderates during the remainder of the year and into 2012.
“The broad narrative behind these figures remains unchanged,” the bank continues. “Exports continue to grow while domestic demand remains weak, although the contraction in the latter is gradually easing.
“Reflecting the modest rate of output growth and the fact that it is driven by sectors that are not labour-intensive, employment has yet to stabilise. It will be the end of this year or, more likely, next year before any employment growth starts to emerge.”
The bank points to the ongoing tensions in the euro area financial markets, a slowdown in the US and commodity price movements as risks that are contributing to uncertainty over growth prospects.
It predicts a continued contraction in the total number at work this year, by 1.7 per cent. A marginal increase in employment is expected in 2012.
The Irish Central Bank also urged the Government to set out “early and detailed” measures to be included in the budget for 2012 so that uncertainty for households and businesses is reduced.
The bank’s economists also say most of the budgetary adjustment should be made through expenditure cuts rather than tax increases because experience internationally and in Ireland shows this is the most effective way of restoring budgetary stability.
The bank calls for greater competition in sheltered sectors of the economy and reform of the public sector. Such changes will, it adds, boost the underlying growth capacity of the economy.
On competitiveness, the bank cautions about recent figures that showed the economy had recovered some of the ground lost during the property bubble.
It says the headline figures have been affected by the decline in low-productivity industries, with construction being particularly important.
Average output per worker in an economy rises if fewer low-productivity jobs exist. This, however, does not necessarily mean that productivity in exports sectors has risen.