Growth will return next year, says NIB

ECONOMIC growth will return in 2010 ending the dramatic decline of over 10% experienced in the last two years.

National Irish Bank says growth will be “tepid” next year with output marginally above 0% for the year.

It warns that the low interest rate regime will come to an end in August 2010 with rates going from 1% to 1.5% by the year end as the ECB moves to curb new inflationary pressures.

By historic standards rates will still be low and “won’t have a significant impact on our economy next year”, he said.

Growth in Ireland will depend on improving exports which will be boosted by stronger global growth and by declining prices which are falling faster than in the rest of Europe.

Chief economist at NIB Ronnie O’Toole said a solid improvement in the productivity of many locally provided services was also need to boost the economy.

Budget 2010 represented a “credible step” in getting the general government deficit back below 3% of GDP in 2013.

Some sectors will see quarter-on-quarter growth in 2010, notably exports and consumer spending, construction and the public sector will continue to contract.

“The ending of the recession is most clearly evident in the stabilisation in the labour market witnessed since August,” said Mr O’Toole.

“Unemployment has not risen over the last few months, while income tax revenues have been stronger than expected.”

That is further evidence job losses are running at a far lower level, while increasing numbers are going into full time education or retiring early rather than signing on, he said.

The one positive aspect in what has been a “dire recession”, has been the performance of exports, he said.

With the global economy now showing good signs of recovery, export growth will reach 4% in 2010, he said.

Economies are benefiting from the support of increased Government spending and a low interest rate environment.

He warned the recovery was not yet “self sustaining” and the rate of recovery would moderate in the second half of the year.

Our falling prices should improve Ireland’s export competitiveness, particularly in very cost sensitive areas such as tourism and food.

Annual HICP inflation has now fallen to -2.8% here, while prices in the rest of the eurozone are up 0.6% year-on-year.

Only Portugal comes close to Ireland in terms of the scale at which prices are falling, recording a drop of 1.6%.

In 2010 the phenomenon of falling is set to continue with Irish prices likely to post another year of falling prices in 2010.

That ongoing easing in prices is required if the economy here is to have a real chance of getting back to solid growth, said Mr O’Toole.