ONE OF the world’s leading think tanks has warned that Ireland is paying a high cost for saving its banks.
The Paris-based Organisation for Economic Co-operation and Development (OECD) said the recession-hit economy appeared to have touched the bottom in the first half of this year.
In its twice-yearly report it forecast a mild recovery driven by exports, but also warned that consumer demand in Ireland would remain sluggish.
“The Government intends to continue policies to bring the fiscal accounts closer to balance and to restore competitiveness,” the OECD report said.
“If sustained, this should help bolster activity and support employment growth in the medium run.
“The banking restructuring strategy aims at transferring non-performing loans to government-backed entities, and then injecting public funds in undercapitalised banks.
“While this approach has the merit of preserving banking stability, it comes at a high cost for the public finances and is creating stress in the Irish sovereign debt market.”
The OECD said it expected gross domestic product (GDP), the value of all goods and services, to show a decline of 0.3 per cent over the course of this year, but turning around next year with growth of 1.5 per cent in 2011 and then 2.5 per cent in 2012.
It also forecast unemployment of 13.4 per cent next year and 12.4 per cent in 2012.
The Department of Finance said earlier this month it expected annual average GDP growth to be 2.75 per cent over the three years from 2011 and 2014.
The OECD also noted that the Government’s plan for a four-year system of drastic budget cuts and savings would be essential to achieving ambitious aims of reducing the deficit to 3 per cent of GDP by 2014.
The deficit is above 30 per cent of GDP after the banking bailout of about €80 billion.
The organisation said the economy was undergoing massive adjustment.
“Past imbalances are gradually unwinding in banking, the housing market, the government budget and the labour market, leaving a large impact on public debt and unemployment,” the report said.
“After two years of deep recession, activity seems to have reached a bottom in the first half of 2010.
“A mild recovery is projected to be driven by exports, while domestic demand is likely to remain sluggish.” – (PA)
