Economy set to fall by 7% this year

By Geoff Percival

Monday, July 06, 2009

THE economy is likely to fall by 7%, on a whole, this year, but modest growth could return next year.

That is according to the latest quarterly economic commentary from National Irish Bank (NIB), which said that the second three months of this year represented the fifth consecutive quarter of economic decline in this country.

On a positive note, however, the rate of economic decline here – based on a number of measures, including consumer confidence levels and the rate of unemployment growth – has eased in the past three months.

While moderate growth next year will be welcomed, NIB’s chief economist, Dr Ronnie O’Toole warned of the dangers of growth being too dependent on export performance.

If growth is fuelled by exports alone, Dr O’Toole said, the rate of unemployment will remain high. Recent figures from the Central Statistics Office showed a 6% month-by-month rise in exports in April, and a 5% year-on-year increase; pushing trade surplus to an eight year high.

"To avoid jobless growth, it is important that an improvement in economic growth is broadly based, with consumer expenditure and business investment contributing, along with exports," he added.

"Some sectors of the Irish economy are going to see recovery over the coming quarters, though others – particularly construction – will remain moribund. Public sector borrowing has received much attention in the last few months, but this will be matched by the massive level of private sector saving this year, which is running at excessive levels.

"As domestic confidence returns, this enormous rate of saving will begin to fall. Consumer spending will bottom out and begin to grow slowly around the turn of the year," Dr O’Toole said.

"As long as Irish consumers and businesses remain in retrenchment mode, then overly aggressive measures to reduce Government borrowing could be deeply damaging. Irish private saving is set to reach 12% this year, the size of which gives a sense of the potential ‘bounce-back’ once sentiment improves, and once savings return to perhaps half this level," he added.

This story appeared in the printed version of the Irish Examiner Monday, July 06, 2009