Economic output to shrink by 14%

THE Central Bank believes economic output will shrink by a total of 14% based on GDP in the three years through to 2010.

Following a decline in GDP of 3% in 2008 the economy should contract by 8.3% this year and by a further 2.7% in 2010, the bank said.

It warned it will be 2011 before domestic demand picks due to the impact of higher taxes, declining wages and the slump in house prices and that unemployment is set to rise to 15% next year while employment will shrink back to 2005 levels.

One bright spot on the horizon has been the performance of Irish exports against a background of a poor global environment, the bank said.

Exports of goods and services were down by just 3% on an annually adjusted basis in the first six months of 2009 by comparison with much more severe declines in the exports of other euro area countries, it said.

The export figures reflected a very solid performance by the broadly based chemicals sector, while traditional areas of the economy did less well.

The bank again warned the outlook for the nation’s finances will remain problematic as it looks set to deliver the highest general government deficit in the EU for the second year in a row.

Signs of recovery will start to emerge in the second half of next year, but it will be 2011 before the economy delivers its first calendar year of growth since 2007 when modest growth is anticipated.

Even at that, the growth figures are expected to be pretty low.

Paul Krugman, the US economics Nobel laureate, on a recent visit to Dublin warned the Irish economy will take five years to get back into serious recovery mode.

The latest Exchequer returns the first half of 2009 confirm “the very challenging fiscal environment and the marked deterioration in the health of the public finances”, the bank said ahead of the publication of the draft legislation on NAMA yesterday, which could result in a further €50bn of government debt as the state takes on the toxic loans of the Irish banks.

Meanwhile the bank forecast unemployment is likely to average 12.8% 2009 and should peak at 15% next year.

It added the economy is now in its second year of recession while the downturn deepened significantly during the fourth quarter of last year and the first quarter of 2009.

As a result of the economic slump deflation is expected to continue to fall and could be down by 6% in the months ahead, according to the bulletin.

Roisín Shortall, Labour Party spokesperson on Social and Family Affairs, said the latest figures from the Central Bank made “nonsense” of Taoiseach Brian Cowen’s claims about the economy. It demonstrates “the speech made by the Taoiseach in Slane, Co Meath, during the course of the local and European elections, in which Mr Cowen forecast a return to ‘rapid growth’ as early as next year was election- inspired political fantasy”.

“The Taoiseach should now publish the analysis or statistics on which this claim was made, or be honest and acknowledge that there was no basis for it,” she said.