Central Bank predicts subdued growth

THE Central Bank has cut its forecasts for the Irish economy this year saying rising unemployment and a weak international environment will mean that growth will be subdued.

In its latest outlook on the economy, the Central Bank says growth, in terms of gross national product (GNP), will be ahead of last year at 1.5%, but this is well below its potential and is being driven lower by the weak international picture, a rising euro and uncompetitiveness at home. An earlier forecast by the Bank put GNP at 1.75% for 2003. The gloomy report says that the recovery could be some time away and it will largely depend on what happens abroad even if domestic pressure are tackled.

The Central Bank says the persistent weakness internationally and the rising euro are leading to a “subdued performance by the domestic economy”.

“Another year of growth well below the economy's potential is in prospect for 2003,” it adds.

On a positive note, growth will be ahead of the 0.1% rise in GNP recorded in 2002. In 2004, the economy will expand by 3.5%, it says. But there is worse news to come on the jobs front in what has already been a difficult year, with over 2,400 job losses since June. It is looking to a rise in the rate of unemployment to 5.25%

One of the trends highlighted by the Central Bank is the rise in unemployment among young men caused by fewer jobs for those entering the labour market.

“Employment may increase next year,” the Bank said, adding that “any pick-up seems set to be modest, however, reflecting the fact that public sector employment is unlikely to continue to expand at recent rates and that private sector employment may respond with a lag to output increases.”

The Bank once again warned of the threat to competitiveness from the rise of the euro. It said that, having benefit from the currency’s decline, export growth and jobs in manufacturing were at risk from its rise, and the cost competitiveness issue needed to be addressed. “This underlines the importance of continuing efforts to enhance productivity and efficiency across all sectors of the economy.”

The impact of the economic slowdown on the Government finances will be apparent at the end of the year when Charlie

McCreevy has to borrow around 2.5 billion to balance the books, according to its estimates.

Eoin Fahy, economist with KBC Asset Management, says the Central Bank report offered no real surprises and, while the GNP forecasts were low, domestic demand grew by 2.7%.

However, any rebound will depend on the US coming out of its slump.

“Just within the last two months there is evidence that we are moving up a gear and growth is accelerating with short-term indicators that the US moving at faster pace and that can only be good for the domestic economy.”

Mr Fahy said he was surprised by reports that the minister for finance was planning for 7% growth in current spending at time when inflation and growth were much lower.