Report predicts growth in 2011

Ireland is unlikely to have a "lost economic decade", and will have the greatest recovery rate of any of its euro zone peers in 2011, a new report said today.

The Ernst & Young quarterly euro zone forecast said Ireland will rank second next year in terms of GDP growth within the 16 countries, up from 14th in 2010. The economy will return to growth next year and relatively strong rates of growth in the medium term, it said.

The forecast said Ireland may have emerged from recession in the first quarter of the year, but "lacklustre" growth throughout 2010 will result in the third consecutive year of decline in gross domestic product (GDP), with the economy contracting about 1 per cent.

However, 2011 would see a rise of around 2.5 per cent in GDP, and the average annual growth between 2012-14 is predicted in the range of 3.5 per cent and 4 per cent, the report said. This is above the rates forecast for Greece and Portugal.

"While Ireland shares some key features with Greece, it is in a better position than other vulnerable countries to withstand contagion from the sovereign debt crisis," the report said.

It cited the strong export sector, improved competitiveness and competitive tax rates as potential supports.

"In particular, Ireland has already implemented wide-ranging measures to consolidate its budget and starts from a position of relatively low government debt," the report said.

However, it warned that there were obstacles to Ireland's economic recovery, including the possibility of contagion from the Greek crisis, rising oil prices and euro exchange rate volatility.

"This is not to mention the challenge of actually seeing through austere fiscal measures for a prolonged period if Ireland is to reduce its deficit in line with the European Commission target and time frame, and restoring to full health the banking sector," the report said.

It also said the recovery would be sluggish and "largely jobless", with employment taking more than 10 years to return to the peak in 2007.

The report said the euro would remain under pressure, falling as low as $1.05 by the end of the year, but would rise slightly as growth in the euro zone picked up.

In the wider euro zone, banks are facing about €200 billion in write-downs this year, with the sector's weakness threatening Eurozone recovery.

There was real danger in the south of Europe that countries would be forced to restructure debt or default, and faced significant rises in unemployment. Falling demand in the south would impact economies in the north of Europe too, the report warned.

Business investment in the eurozone is also under threat, with predictions that it would fall by 2.8 per cent this year, and would be 5 per cent lower in 2014 than it was before the crisis.