Warning against becoming 'punchbag of Europe' again

IRELAND WILL quickly become the “punchbag of Europe” again if the Government gives in to union pressure, according to financial services group Friends First.

At the publication yesterday of the Friends First latest quarterly outlook, its chief economist Jim Power predicted that Ireland may technically emerge from recession in the middle of 2010, and forecast GDP growth of 3.1 per cent for 2011. However, any such recovery would be a “jobless” one, at least for the next 18 to 24 months, Mr Power said, and would be largely driven by the pharmaceutical and chemicals exports sector.

Ireland had been rewarded for the difficult decisions made in last December’s budget and was no longer the focus of negative international attention, he said, but any U-turn on those decisions would be “catastrophic”.

Next December’s budget must be equally tough, as the State’s fiscal situation remained extremely difficult. “It is essential that the fiscal correction process remains in place,” he said. “If the Government is seen to backtrack, then the game is up. We will start moving into Greek territory.”

He dismissed the argument made by some union representatives that the State should not be held captive by the opinion of international bond markets. These markets would determine Ireland’s future stability.

“The notion that we can postpone fiscal adjustments does not make sense. We don’t want to go back to the Eighties.”

In relation to the housing market, he said that prices had yet to bottom out and predicted a further 10 per cent fall before the trough was reached.

The competitiveness agenda must be pushed as aggressively as possible, as it was one of the key conditions for economic recovery. “The cost of doing business and the cost of living in Ireland must be further reduced if we are to reap the benefits of a global economic recovery,” he said.

Although the world economy had technically emerged from recession, the sharp recovery that followed past recessions such as the dotcom bubble was unlikely to happen, he said. A slow, gradual recovery was more likely because of the dampening effects of the fiscal adjustments that must be implemented in the global economy.

Although global stock markets had rebounded by 55 to 65 per cent since bottoming out, the performance from here on in was going to be a lot less impressive, except perhaps in emerging markets, he predicted.

Interest rates were expected to stay low for the foreseeable future, the historically low euro zone interest rate of 1 per cent was likely to remain stable this year and any rate hikes in 2011 were expected to be modest.

“From an Irish perspective this is positive news,” he said.