Economy dependant on recovery in world markets
Assuming the world economy grows from 2011, the Irish economy can expect to experience a period of above average growth of about 5% as it recovers some of the ground lost in the three years 2008-2010, when the economy will shrink by an estimated 12%.
The ESRI, however, said the expected trend growth for the period to 2015 has been cut to 3% from a figure of 3.6%.
Solving the unemployment issue is the most important task facing the country, said John FitzGerald, one of the report’s authors, to ensure the economy is not landed with serious long-term unemployment in the coming years.
For that to happen, however, the banking crisis has to be resolved.
The report does not detail how this might be done but has a built-in assumption in its model that the State will pay over €50 billion for the €90bn it will acquire from the bank’s toxic and other debt.
That price tag implies the State will have to pump a further €20bn into the banks on top of what has already been allocated, Mr FitzGerald said.
That amount of further capital funding implies the State will acquire about 75% of AIB and a lesser stake in Bank of Ireland.
The report says the recession will deprive the economy of a permanent loss of output of about 10% and output per head will not return to 2007 levels until 2015 at the earliest.
Wages will have to fall and the ESRI expects they will fall by about 7% per annum over each of the next three years and the pressure to compete will force workers to opt for jobs rather than pay rises.
The report, called Recovery Scenarios for Ireland, concludes even if recovery takes place output per head would still only be restored to its 2007 level by the middle of the next decade.
Mr FitzGerald said the assumptions about the economy getting back into balance hinge on the two budgets being delivered on in full this year and next.
