Economy will stagnate despite growth elsewhere, warns OECD

THE ECONOMY will stagnate in 2011, despite an improved outlook for the euro zone and the US, the Organisation for Economic Co…

THE ECONOMY will stagnate in 2011, despite an improved outlook for the euro zone and the US, the Organisation for Economic Co-operation and Development (OECD) said yesterday.

The Paris-based OECD has slashed its 2011 forecast for the Irish economy when compared to its November 2010 projections. It now has the most pessimistic outlook of any of the main international organisations.

The organisation’s analysis was downplayed by the Minister for Public Expenditure, Brendan Howlin, who described it as “out of line with our thinking and that of the consensus”.

The OECD believes that the Irish economy, as measured by gross domestic product (GDP), will not grow this year. Last week, the European Commission and the International Monetary Fund separately forecast GDP growth of 0.6 per cent.

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Addressing a conference in Dublin yesterday, Patrick Lenain of the OECD said that its growth projection for 2011 is in line with the consensus among private sector forecasters.

The OECD supported Ireland’s corporation tax rate, said Mr Lenain - a French national - but he added that taxes on property should rise because they are unusually low.

His comments came amid increasingly strong indications that French pressure on the Irish 12.5 per cent rate is coming mainly from President Sarkozy rather than from the office of French finance minister, Christine Lagarde.

After a meeting with Ms Lagarde in Paris yesterday, Minister for Finance Michael Noonan said she had a “strong appreciation” of the reasons for the Republic’s position on corporation tax.

“I asked her to reflect on what I was saying. I know she will do that,” Mr Noonan said.

On Ms Lagarde’s candidacy for the post of IMF managing director, Mr Noonan said it would be in Ireland’s interest to see her take on the role.

The Taoiseach, Enda Kenny, later said that he “would like to think there would be a European in charge of the IMF”.

Mr Kenny also categorically ruled out any suggestion that Ireland wants to restructure its debt with the European Union and International Monetary Fund or will seek more time with which to pay back the €67 billion loan package.

“We will repay our loans. We will not restructure our debt. We’re not looking for any further time,” he said.

There was some praise from the OECD for the Government’s jobs initiative yesterday, with Mr Lenain describing efforts to regain control of the public finances as “remarkable”.

However, he was critical of State training programmes, saying bluntly that the Government should stop spending money on training people for the construction sector.