Possibility of speed bumps on road to national recovery as rates set to rise, predicts Power

INTEREST rates are expected to begin rising again by the end of next year or early 2011, at the latest. However, Ireland is not likely to see GDP growth for another two years, according to one leading economist.

As part of his quarterly economic outlook presentation yesterday, Friends First chief economist Jim Power said that despite more upbeat outlooks from other commentators, he still expects the Irish economy to shrink by another 1.7% next year (on top of the anticipated 7.3% drop for 2009, as a whole) before modest growth of around 3% is seen in 2011.

The economist said that although there exists “clear evidence of recovery emerging in all international economies”, the recovery here is likely to be gradual “with the possibility of speed bumps.”

“There are grounds for optimism, but some grounds for caution also. Our banking difficulties are being sorted out gradually, but there are still many structural imbalances that will take time to work through.

“It will be a gradual global economic recovery rather than sudden growth and the Irish challenge will be to ensure that we’re in a position to exploit it when it comes. It would be naive to believe the next 18 months won’t be challenging,” he said.

Meanwhile, Citigroup analyst Michael Saunders said yesterday he expects a sustained but uneven global recovery happening next year with the strongest growth evident in the US and Asia and more uneven growth anticipated for Europe and Japan.

Mr Power said Ireland’s national debt should be €76bn by the end of this year and getting it down to the EU threshold of 3% of GDP by 2014 will be “a major challenge”.

His outlook also suggested a slight upturn in the Irish housing sector in 2011, with around 15,000 new house completions possible. While this would be up on 2010 forecasts (of around 12,000 completions) it would still be significantly down on the 24,000 figure for this year.