Goodbody says Ireland will miss target to cut deficit to 3% of GDP

GOODBODY stockbrokers has predicted that Ireland will miss its bailout target of cutting its deficit to 3 per cent of gross domestic product (GDP) by 2015.

The Dublin brokerage also downgraded its 2012 GDP forecast to 0.7 per cent from 1.2 per cent, due to the drag of weakening domestic demand.

It sees the Republic’s debt-to- GDP ratio rising to 124 per cent in 2014 (up from as low as 25 per cent in 2007) and it also expects that the 3 per cent deficit target – as agreed with the Republic’s bailout partners under the memorandum of understanding – will not be reached.

“Ireland needs assistance if it is to meaningfully reduce debt levels, especially that resulting from the banking crisis,” Goodbody said in an economic outlook published yesterday.

“Austerity on its own will not work, but will have to be supplemented with growth-enhancing efforts.”

Growth is expected to improve in 2013, but the process of deleveraging by banks and households would drive a further modest fall in domestic demand in that year, the firm predicted.

Goodbody argued that the process of bank deleveraging should be slowed in order to encourage a recovery in the domestic economy.

However it said this would require further assistance from Europe.

Officials from Ireland’s troika bailout partners in the EU, European Central Bank and the International Monetary Fund arrived in Dublin yesterday for a two-week review of the bailout targets.

“The broad conclusion must be that we are now moving firmly into the realms of the stressed macro-economic scenario outlined” in Ireland’s bank stress tests in March last year, compared to base-case assumptions, Goodbody said. (Additional reporting from Bloomberg)