Unemployment to hit 184,000 next year

UNEMPLOYMENT will hit 184,000 in 2003, up from 164,000 this year, the Economic and Social Research Institute (ESRI) has warned.

By the end of 2003, up to 5.2% of people will be out of work, but that figure will probably hit 5.5% sometime next year before averaging out at the lower 5.2% figure.

ESRI chief economist Danny McCoy said: “Unemployment is the dog that hasn’t barked yet” in terms of the worsening conditions in the economy.

The significant job losses in the manufacturing sector have been masked by the high increase in public sector jobs this year, but the truer picture will emerge next year, he said. Speaking at the launch of the Winter 2002 bulletin of the ESRI, Mr McCoy warned also that inflation would stay stubbornly high and is expected to average 5.1% next year against an annual inflation rate of 4/8% to the end of November 2002. In its Winter 2002 Bulletin, the Government think-tank warns the outlook for the economy remains uncertain.

It notes also that for the first time in over 20 years, inflation and unemployment are rising simultaneously, according to next year’ projections.

It is unusual to have rising inflation at a time of falling employment and slower economic growth, he said.

Again, the services sector, from health, education and hairdressing, remain key drivers of price inflation.

When the indirect tax measures in the Budget, expected to add at least 0.8% to next year’s figure inflationary, are also included, the picture emerges of sustained price pressure in the economy, said the ESRI.

It means inflation will stay more than double the EU average of just over 2%. Overall, the ESRI reckons the Budget overall was probably mildly deflationary due to the cut in public spending being reduced to “more sustainable rates.”

It reckons growth this year was 4.3% in GDP terms and a much more modest 2.2% based on the GNP measure. Economists point out GNP is what is left after the multinationals take their profits out of the economy. These have increased as the US downturn deepened, with subsidiaries in Ireland sending more money back than otherwise would have been the case.

While the GDP figure will fall to 3.8% from 4.3% next year, the GNP figure will come in at 3% against 2.2% for this year.

GDP is the more accurate measure of overall growth in the economy, however, which will be down on this year, said ESRI.

For 2003, the ESRI is forecasting GDP of 3.8% and 3% for GNP. While changing EU rules may ease the pressure on government budgets in the years ahead, the ESRI argues that proper national accounting requires multi-annual spending plans.

Such an approach was particularly valid in the case of capital spending.

Such a policy should ensure that crucial projects were delivered on time and within budget, said the ESRI.

Finally, the Government think-tank suspects the next move in European Central Bank rates will be up.

Such a view may seem strange given the poor state of the economy.

Mr McCoy believes, however, the ECB wants to have an interest rate cut option further down the line if the economy worsens in the coming months.

To cut rates so soon again after the 0.5% cut would limit its options going forward, he said.