Ireland's economy is showing signs of turning the corner, a new economic forecast said today, with gross domestic product (GDP) expected to contract by 0.7 per cent this year.
The PricewaterhouseCooper report said the contraction is assuming demand growth in key export sectors in the UK and US will remain low, the challenging banking environment persists and high unemployment will limit domestic demand growth.
By next year, the report predicts GDP will return to growth, at 2.7 per cent for 2011. This compares to the wider euro zone economy, which is expected to rise by 0.9 per cent for 2010 and 1.2 per cent next year.
"Overall, economic recovery in Euroland remains muted, with GDP growth being driven by exports and government spending. The planned fiscal austerity is therefore a significant risk to recovery in many member states," the report said.
Ireland's economic growth beat the euro zone average in the first quarter of the year, when it grew 2.7 per cent in terms of GDP. However, the report warned that this was volatile.
"The major driver of Ireland's GDP growth in Q1 was due to the multinational sector, primarily pharmaceuticals and software," the report said.
"Along with Greece, these countries are being closely monitored by the bond markets for signs of difficulty in servicing their sovereign debt obligations. However, favourable economic conditions are supporting Irish and Portugese public finances, although, for 2010, the economic outlook in those countries remains only moderately positive."
The report said Ireland continued to be monitored closely by bond markets, despite the the Government's efforts to restore the country's fiscal position.
"The market's tolerance for Euroland budget deficits has fallen, with the pressure to consolidate public finances rising after a brief respite in May in the wake of the Greek bailout. The relative cost of raising sovereign debt is sharply up for Spain, Greece, Portugal and Ireland and fiscal austerity is on the political agenda across Euroland, even in the relative safe haven of Germany," it said.
"However, any significant immediate negative impact on the Euroland economy from fiscal consolidation is unlikely. With the exception of Greece, Ireland, Portugal and Spain, most of the austerity measures are planned for 2011 and beyond."
