THE CENTRAL Bank has sharply lowered its economic growth forecast for 2012, citing slowing export growth and weak consumer spending. However the Bank says its lower growth forecast should not affect the Government’s budgetary arithmetic for the year.
Despite the renewed weakening of the economy since the middle of last year, tax revenues for January met budgetary targets, according to figures released yesterday by the Department of Finance.
Taoiseach Enda Kenny refused to accept the Government’s more optimistic budget forecasts were out of line with the Central Bank and said the real priority was creating jobs.
“The Government’s growth figures are median figures and we are prepared to stand by those,” he said. “[It is] very difficult for anybody to determine what the final growth figure might be, but the Government have set out their figures and we stand by that.”
Fianna Fáil finance spokesman Michael McGrath said Ireland was now looking at the fifth successive year of a contraction in the domestic economy. “In opposition, Fine Gael and Labour consistently said you cannot cut and tax your way out of recession. In Government, they now need to put those words into action.”
Sinn Féin’s finance spokesman Pearse Doherty said Ireland was “without doubt” facing another recession. “We have Enda Kenny time and time again saying we have brought the country back to growth. The Central Bank is telling us the domestic economy is going to shrink again next year,” he said.
The Central Bank is still forecasting that the Coalition will hit its target of reducing the deficit to 8.6 per cent of gross domestic product (GDP). In its quarterly bulletin, the bank says GDP will grow by just 0.5 per cent this year and by 2.1 per cent next year.
Gross national product (GNP), a narrower measure of economic activity that excludes among other things multinational firms’ profits, will actually fall by 0.7 per cent this year and will rise by only 1 per cent in 2013, it says.
The Central Bank warns that the depth and duration of the slowdown in world economic activity will be central to the prospects of the Irish economy over the next year or so.
Exports will continue to contribute positively to GDP growth, but by less than it anticipated just three months ago when it published its last forecast. However, the bank is optimistic that the State can still achieve its target of reducing the deficit.
“On the face of it, the consolidation measures announced in the budget, and the somewhat better starting position for 2012, should allow the targeted reduction of the deficit to 8.6 per cent of GDP to take place, but the pattern of growth will clearly determine developments to a degree,” the bank says.
A Department of Finance spokesman said the fact that the exchequer budgetary position at the end of 2011 was better than anticipated a year earlier highlighted the robustness and credibility of the tax revenue and deficit forecasts for 2012.
It also provided a small safety margin in terms of achieving the 2012 deficit target, he said.
However, the Central Bank is not optimistic about jobs despite the latest figures which show a drop in unemployment January.
It forecasts that the jobless rate will average 14.6 per cent in the year, slightly higher than the 14 per cent previously expected. It expects wages to stand still this year while wages across the euro zone increase by 1.8 per cent, making Ireland relatively more competitive.
Official figures showed that tax revenues for January were up 17 per cent to €3.66 billion compared with the same month the previous year.
The Department of Finance said the dramatic rise in tax revenue could largely be accounted for by the late payment of corporation tax receipts. It described the revenues as broadly on target.
There was also a rise in income tax receipts, but the department acknowledged that the full-year impact of the universal social charge had a big impact on the change.