The Central Bank has forecast that the Irish economy should grow by around 3.5 per cent next year.
However, it warned that this figure was wholly reliant on a quick US recovery.
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Dr Michael Casey
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In its Winter Bulletin published today, the Central Bank said the Irish economy had effectively stalled in the second half of the year. But the strong gains made in the first two quarters of 2001 should generate an annual growth rate of 5.5 per cent this year.
Despite the sluggish second half of 2001 the Central Bank’s Dr Michael Casey insisted that Ireland is not in recession but rather experiencing a "sharp slowdown."
Dr Casey insisted that Ireland is quite capable of returning to its long term growth rate of five per cent in 2002. He added that consumer confidence is now essential and that Ireland is on a much sounder financial footing than in previous downturns.
Any recovery in Ireland must be preceded by the US as Ireland is now so closely linked to the US through trade and the presence of so many US companies here. Dr Casey said the US monetary authorities remain steadfast in their conviction of a sharp rebound in US in the latter half of 2002.
But the bank again expressed its concerns about Ireland’s relatively high inflation compared to other euro zone members. The Central Bank described this year’s budget as "moderately expansionary" and expects Mr McCreevy’s measures to add one percentage point to inflation.
The poor productivity of Ireland’s indigenous industries continues to be a concern to the bank. The bank warned that this sector would see its competitiveness deteriorate further if the euro strengthens against the dollar next year, as many economists predict.