The economic fallout from the September 11th attacks on the United States dealt a blow to economic prospects for global economies, including that of Ireland, and caused the most widespread world-wide slowdown in two decades, the International Monetary Fund said yesterday.
The attacks hit European economies which were already slowing because of regional and global shocks including higher oil and food prices. Economic prospects in the euro area have since deteriorated further, the IMF said in a revised version of its World Economic Outlook.
Although economic growth will be reduced in the Republic, it will still be one of the highest in the developed world next year, according to the IMF's revised figures. The gross domestic product in Ireland will fall from 3.9 per cent to 3 per cent for 2002, it said.
The IMF singled out Ireland, Finland and the Netherlands as euro countries that "appear to have a greater scope for a cautious easing of fiscal policy if downward pressures on activity prevail." It says there was less room for manoeuvre in Germany France and Italy given the 3 per cent deficit ceiling under the Stability and Growth Pact.
It lowered projected growth rate for the euro zone as a whole from 1.2 per cent to 1 per cent. "Part of this downward revision reflects the carry-over effect on growth in 2002 from recent data indicating growth was weakening even before September 11th," it said.
However the fund said the euro zone was less vulnerable than the US to adverse shocks to confidence and activity. Its external balances were stronger, households less indebted and less exposed to stock market developments and business concerns about over-investment and over-capacity appeared to be lower. The IMF forecast only a modest rise in the unemployment rate in Ireland next year, up from the current 4.3 per cent to 4.5 per cent.
The news came as IDA Ireland announced its worst job-creation figures in 15 years, with a fall of almost 4,000 in full-time employment at the companies it supports.
New jobs created during the year were just over half the record number of the previous year while job losses more than doubled, according to preliminary figures from the development agency.
By the end of this year, 3,900 fewer people were employed at IDA-supported companies than at the end of 2000. The numbers in full-time employment at these companies fell to 137,272 from 141,137. Just over 13,100 new jobs were created in 2001, down sharply from the 23,063 reported for the previous year.
At the same time, the number of jobs lost jumped to just over 17,000 from just over 8,000 last year.
The IDA's chief executive, Mr Seβn Dorgan, blamed the global slowdown in the information and communications technology (ICT) sector for "the small net loss" in jobs this year. He warned that "the run of record-breaking results is over for the time being, and we are back to the more normal growth levels of the mid-nineties".
Stressing the "strong positive performance" of the healthcare/pharmaceutical and international and financial services sectors, he forecast employment growth would resume in 2002. This indicates expected employment growth of 4 to 5 per cent in 2002 compared with the 12 per cent achieved in 2000.
Describing the 2001 fall in employment as temporary, Mr Dorgan said the IDA considered the Economic and Social Research Institute forecast of economic growth of 5 per cent per annum over the next 10 years achievable as long as proposed National Development Plan investments were carried out.
"It has been the toughest year for a long time for many companies in the ICT sector but some companies did continue to grow and we expect to see recovery emerging in the course of next year. Meanwhile we are continuing to compete strongly for investment in our other growing sectors," he said.
Suggesting that the creation of 13,100 new jobs was "a strong performance considering the state of the global economy", Mr Dorgan said it was better than the annual numbers achieved up to 1996 and compared favourably with other European economies.