Economy ‘could grow by 4% in 2011’

THE economy could deliver growth of 4% in 2011 and will move out of recession at the start of next year.

In an upbeat assessment of the economy, Rossa White, senior economist, Davy Research, said several factors are conspiring to pull the country out of recession quicker than many had forecast.

His bullishness is shared to a degree by leading ESRI economist John FitzGerald, who says if the Government takes the tough action on government spending, the economy could return to growth as early as 2011 or no later than 2012.

Mr White, in his analysis, says global economic recovery is starting to kick in faster than expected. That will boost exports and help increase confidence.

Expanding on his view, he noted that social transfers of about €5bn in welfare and other payments are making their way into the pockets of consumers, while in effect incomes last year fell by only 1% in real terms, he said.

Much of the income decline was offset by the sharp fall in interest rates that resulted in a net cash flow into the economy of about €4bn, he said.

Mr White also said that without question, the recession globally ended in the second quarter of this year and that will have a significant impact on exports which will provide the engine of future growth, he said.

The economy will start to grow in the first quarter of next year, with expected average annual growth of 0.5% in real GNP in 2010.

That forecast implies a peak-to-trough decline in GNP of 14% per cent from the third quarter 2007 to fourth quarter 2009.

According to Davy, consumer spending could increase by 1.5% as real incomes stabilise and precautionary saving eases, while export growth is “likely to quicken” as Ireland feels the effect of a worldwide economic recovery.

The Davy report forecasts construction output will contract until 2011, while the amount of public services “may decline slightly”.

In a separate analysis Paul Robinson, a director and chief sterling strategist at Barclays Capital was far less optimistic. He warned the impact of the economy’s over-reliance on the construction sector would be felt out to the end of 2013.

“We forecast three years of consecutive contraction in Irish real GDP (2008-10),” he said.

The principal sources of weakness would be construction investment and final consumption, with a significant deterioration in public finances, he added

Fiscal tightening is likely to be an important drag on growth not only in 2009 and 2010, but until 2013.

“That confluence of major negatives leads us to expect real GDP to fall 7.1% this year and a further 0.3% in 2010, he said.