Bleak 2009 as economy faces three-year recession

THE economy is facing a three-year recession as the global outlook worsens.

This will push unemployment up to 12% in 2010, levels not seen since the early 1990s.

A report by Davy Research says gross national product, which measures the total value of goods and services, will decline by 4.1% next year. Rossa White, chief economist Davy Research, says 2009 will be bleak with economic output falling at the fastest pace on record.

The economy will contract by 2% in 2008, 4.1% next year and by 0.5% in 2010 with unemployment expected to hit 12% by the end of 2010, he said.

While the green shoots of recovery should start to appear in 2011, White warns the outlook for the British economy could be crucial to that return to growth. “Weakness of the British pound is a massive risk for indigenous exporters,” he warned.

Britain is likely to face a prolonged recession for structural reasons and sterling looks set to weaken further against the euro.

If the Bank of England slashes interest rates towards zero, “we would not rule out a sterling currency crisis and parity with the euro” down the line.

Exports of goods to Britain are set to fall about 5% in volume next year and by 2.5% in 2010. Service exports to Britain could stay unchanged, before rising in 2010.

“Those forecasts have downside potential, particularly from exchange rate risk,” he said.

In his analysis, he said the slump that began with the end of the property boom has been exacerbated by the global financial crisis, which is hitting both exports and consumer demand. Investment will continue to decline with a fall of 25% next year and a 14% decline in 2010.

“Employment will fall further due to the lag between economic activity and layoffs. In those circumstances, it is hard to see how consumer spending will remain resilient.”

Meanwhile, housing registrations declined 70% in November from a year earlier, according to Merrion Capital. It said the figures were contained in the latest Homebond statistics, which registers new developments.

On the future of the banks, he said adequate recapitalisation of the system was needed to allow a free flow of credit back into the economy. That of itself would be a significant factor is freeing up the flow of credit to all sectors and “hasten recovery” here.