Forecast sees recession ending in 2011

THE Irish Republic will not exit recession until 2011 but when it does, growth will exceed that of Britain and the North, according to the Ernst & Young Economic Eye winter 2009 forecast.

Unemployment will hit 13% but it will be 2014 before the economy returns to its 2007 peak in real terms. And it will take 12 years to regain the net jobs lost in just three declining years.

The survey indicates the island of Ireland economy will shrink by 6.7% in 2009 – revised down from 7.8% – with the North experiencing the worst economic contraction on record for this period. However, tentative recovery is forecast with the all-island economy estimated to contract just 0.3% in 2010 with the North exiting recession, according to the forecast&.

Special advisor to the Ernst & Young Economic Eye Neil Gibson said fears that the Republic of Ireland would experience a recession three times as deep as the North’s have proved unfounded, following a tough stance on fiscal policy and a general pick-up in global economic conditions.

“By 2011 the Economic Eye predicts that GDP growth in the ROI will outstrip the UK and Northern Ireland, as extreme budget rebalancing measures take effect,” he said.

Mr Gibson said business surveys, corporate announcements, and resilient consumer and economic data all point to a modest improvement in the economic mood north and south of the border.

“This emerging optimism should however be tempered by the fragility of current conditions and a growing realisation of the scale of problems in public finances in both jurisdictions,” he added.

Tax hikes and Government spending cuts are a major problem for the south. For the Republic to meet its EU stability and growth pact deficit obligations of -3% of GDP by 2014 the Economic Eye predicts that teh Government will have to either cut spending by close to 4% per annum, create an extra €2.5bn in new tax measures, or have a combination of both spending cuts and tax increases – with 2% cuts and €1.1bn new tax measures, the report’s authors added.

With unemployment on the island expected to hit 250,000, net migration from the Republic is forecast to fall from its peak level of 72,000 in 2006 to a net outflow of 35,000 in 2009 and 2010.

“One important implication of this is the knock-on effect on housing demand. Based purely on population change and occupancy rate assumptions, the Economic Eye forecast would suggest that fewer than 10,000 new houses (including replenishment of demolished stock) would be required annually in ROI during the next few years,” the report authors add.

Senior partner Ernst & Young Ireland Mike McKerr said that while organisations needed to remain vigilant when dealing with the scale of the economic challenges ahead, there remained some clear signs of optimism for Irish business particularly in the medium term.

“Organisations continue to see Ireland as a desirable location to do business even during a recession. Taxation levels, skills, position in Europe and access to international markets are notable strengths for the ROI and key to investment decisions,” he added.