Slow growth ‘will feel like recession’

ECONOMIC growth below 1% this year will make it feel like a recession here, according to Bloxham economist Alan McQuaid, who said many economists believe Ireland is already in a recession, or in danger of slipping into one.

Most, however, are predicting it will be a brief, shallow technicality rather than a severe downturn.

Mr McQuaid, who is predicting GDP growth of 0.9% this year, believes Ireland is in a stagnation environment — a period of slow economic growth and relatively high unemployment.

“Although GDP growth, boosted by a strong performance by net exports, should remain in positive territory, it will certainly feel like a recession. Growth is projected to pick up to 2% in 2009, but that assumes oil doesn’t continue its upward movement over the next 12 months, and the ECB cuts interest rates next year,” he said.

Mr McQuaid said the slowing economy is having an adverse impact on the public finances, with the Government set to well overshoot its budget deficit target for the year of €4.866bn.

Bloxhams is now forecasting an overall deficit this year of €6.5bn.

In the latest Reuters monthly poll, for May, the median forecast of 2008 Irish GDP growth was 1.6%, down from 2.0% in April, and 3.5% last October.

Mr McQuaid expects the average rise in inflation this year will be at least 4.5%, which will increase the pressure on the social partners to come up with an “acceptable” new national pay deal.

“To put it bluntly, this has been a very bad few months for the Irish economy.”

Bloxhams are also predicting house prices will have fallen by 11% come December, adding that prices will be back on a rising trend in the latter part of next year and in 2010, though the extent of the gains will be in low signal digits.

“In our view the most important thing the minister must do is restore consumer confidence .... there is a strong argument to be made for reducing the cost of purchasing a house, even temporarily.

“We think the Government should consider reducing stamp duty on house purchases all across the board by two or three percentage points, even for just a year to try and get the property market going again,” said Mr McQuaid.