7.9% contraction predicted this year

Dublin: Ireland’s economy is projected to contract by 7.9% in 2009 and a further 1.8% in 2010, according to PwC’s latest Economic Outlook.

The Irish economy, which has contracted sharply in recent quarters, was unchanged in the second quarter of 2009. This is due to the positive contribution from net exports and stronger investment expenditure offsetting lower Government expenditure and the continued depletion of stocks by businesses. The labour market continues to deteriorate albeit at a lower rate.

With many businesses taking their share of the pain, a recalibration to a lower cost base environment is taking place. Deflation for 2009 is forecast at 1.6% for Ireland (HICP — Eurostat). This cost correction will be a key driver to restoring Ireland’s competitiveness.