‘Economy will fall further 8% in 2009’

THE Irish economy is slowly moving out of the deep depression triggered by a combination of the property slump and the global credit crunch.

The latest Central Bank quarterly bulletin offers little comfort, saying “Ireland’s recovery will be slower than elsewhere”.

Having declined by 3% last year, the economy will fall a further 8% in 2009 and by 2.3% in 2010, it said.

The economy will start to grow in 2010 but the impact will not be enough to deliver a full year of economic growth, the bank said.

The bank forecasts modest annual growth in 2011, which will be “above 1%” for the year, said John Flynn, head of economic analysis and research at the bank.

He did not endorse the view of one independent economist that growth of 4% was on the cards in 2011. Though the bank sees green shoots of recovery emerging next year, it said tackling the national debt is a key priority.

Outgoing director general of the bank Tom O’Connell said the bank backed the recommendations of An Bord Snip and the Commission on Taxation. Bord Snip recommends cuts of €5.3bn next year while the taxation report calls for a new tax on homes, water charges and a carbon tax.

If there is to be a recovery down the line Mr O’Connell said the mounting debt caused by the property collapse has to be tackled head on. In the period 2001 to 2007 social welfare payments doubled while the sums paid in child benefit quadrupled and public sector pay doubled.

The collapse in tax income means the State will run a deficit of close to 12%, higher than the Government’s revised target of 10.5%.

The country will have to borrow at least €20bn to cover this year’s tax shortfall, a situation that is putting huge strain on the public finances. Mr O’Connell said Ireland has been given until 2013 to get the deficit back to 3% and that timetable cannot be breached, he said. To do so would add to the cost of funding our debt, set to rise sharply in the years ahead due to the collapse in the State’s tax take.

The Government can no longer afford the cost of social welfare and public sector pay. And the Central Bank has pulled no punches in calling for substantial cuts across social welfare and public sector pay, as well as endorsing the call for a carbon tax and a tax on homes made by the Commission on Taxation.

The economy has the ability to recover Mr O’Connell said but that is contingent on sharp cut backs in the Budget, he said. He also said Ireland’s National Asset Management Agency has a “fair chance” of breaking even over its lifetime.