End of recession 'in sight' as clear picture emerging, says ESRI
An end to the recession is now “in sight”, after the Economic and Social Research Institute (ESRI) said that “a clear picture” was beginning to emerge of the likely extent of the economy’s troubles.
For the first time in more than two years, the institute has not lowered its quarterly forecast for Ireland’s economic prospects for the year ahead.
It now expects the Irish economy to shrink by 8.9 per cent in terms of its gross national product (GNP) this year, which is a slightly more modest contraction than it expected at the time of its previous forecast in April.
ESRI economist Alan Barrett, one of the authors of the report, said the stability of its forecasts, after a succession of regular and often sharp downward revisions, was “in itself a noteworthy factor”.
The economic forecasting body has lowered its assessment of what will happen to the Irish economy in 2010, cutting the forecast from a -1.2 per cent decline in GNP to a deeper contraction rate of -3.5 per cent.
However, Mr Barrett said “the broad conclusion to be drawn is that the size of the recession is becoming clearer”, after what was a period of stark uncertainty for the Irish economy.
The institute has also slightly improved its forecast for the unemployment rate, which it now expects to reach 16.1 per cent in 2010, rather than almost 17 per cent. But Mr Barrett cautioned that the change was “not really related to any optimism on employment”, but was because a greater number of people were leaving the country than expected and because rates of participation in the labour force was also dropping back.
The ESRI stressed that the end of its downward forecast revisions did not mean the recession was over. “The recession will continue during the rest of this year and into next year as well,” Mr Barrett said, in an echo of the synopsis published by the Central Bank on Tuesday.
Economic output will have declined 13 per cent from its peak by the time the economy starts to recover, the institute said. GNP per capita, or income per head of population, will sink back to 2001 levels next year.
The institute is basing its forecasts on the assumption that public sector pay will be reduced by 3 per cent. Mr Barrett said he believed it was better to reduce the public sector pay bill through pay cuts rather than a reduction in staff.
“One of the general difficulties with job cuts is that if you let people go, there may be an upturn and then you have to hire them again. There is a value to keeping people in place,” he said.