Irish economy fastest shrinking in developed world

The Irish economy is shrinking faster than any other developed country in the world, the state’s leading think-tank warned today.

A devastating review by the Economic Social and Research Institute (ESRI) predicted the recession could be twice as bad as initially thought.

The body said GDP will have dropped 11.6% between 2008 and 2010 – damaging levels not seen since the Great Depression of the 1930s.

In a dismal assessment the ESRI’s Dr Alan Barrett also said: “It is possible that people like Zimbabwe have bigger contractions, but you know when you’re in trouble when you’re saying at least we’re not Zimbabwe.

“You’re talking about the biggest contraction in an industrialised country since the Great Depression.”

Instability in Zimbabwe has led the economy to shrink by a massive 45% in the last five years, while unemployment hit 94% in January.

On the other hand the ESRI’s dismal forecasts for Ireland warn the economy will this year shrink twice as fast as initially thought and between 2008 and 2010 GDP will plummet by 11.6%.

Only Finland came close to this figure when it dropped by 11% between 1990 and 1993.

Dr Barrett said, however, that thanks to years of huge growth in the Celtic Tiger of the late 1990s Ireland’s average economic growth for the last decade will be around 4%.

Even though there has been talk of ’green shoots’ elsewhere, Dr Barrett warned they may not bear fruit in Ireland for several years.

“I guess we’re all becoming mini-experts on the Great Depression,” he said.

“One of the things that I was not aware of about the Great Depression was that there were a series of false starts in the 1930s, around 1936 ... again green shoots appeared at some times in the 1930s, but they then went.”

Dr Barrett warned high unemployment could continue well into any recovery, as the jobless rate remained at around 15% in the early 1990s following the last recession in the ’80s.

Key points of the bulletin include:

* The numbers in work will fall by 187,300 this year driving the unemployment rate to 13.2%, compared with Government predictions in the emergency budget of 12.6%.

* That figure will jump to 16.8% next year, worse than the 15.5% projected by the Department of Finance.

* New house prices will fall by a third from the peak in Spring 2007.

* Retail prices fell by over a fifth in January.

* Inflation will average -4.6% this year and zero in 2010.

* Gross Government debt will rise from 41% of GDP in 2008 to 58% this year and 70% next year.

The ESRI said its projections had not taken into account the possible impact on the public purse of the planned ’bad bank’ – the National Asset Management Agency (NAMA).

Proposed in the April Budget, it will buy-up failing property loans.

While he declined to comment on its possible impact, Dr Barrett said NAMA was a positive development as it indicated decisive action towards the banking crisis.

“It’s too early to be definitive as to whether or not this is the right way to go,” he said.

However while welcoming Government measures to help restore economic stability, he said any future actions should focus on cutting spending and on imposing carbon or property taxes, not raising income tax.

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