Bloxham expert says worst of slump is over as output decline slows

ONE of the country’s leading economists says Ireland has seen off the worst of the economic slump.

Having fallen by 7% in GDP terms in 2009, this year the decline in output will be less than 1%, a figure that is in line with other forecasts.

But chief economist with Bloxham Stockbrokers Alan McQuaid warns prices and wages need to adjust further downward to make the economy more competitive and ensure we pull out of the worst slump in living memory,

“Another 10% fall is required in our view. House prices too are likely to fall by a further 10%-15% this year,” he said.

McQuaid said the jobless rate is probably close to peaking in the 12.5% to 13% range.

Although an upturn is on the way, he warned “the natural rate of unemployment in the coming years will be significantly higher than during the Celtic Tiger” era, at 7%-8%. Those figures will be hit by the high level of unskilled workers in the economy, he said.

Other negative pressures will include higher interest rates, which could see variable mortgage rates rising by between 0.5% and 1% this year.

This is likely although the European Central Bank may not start raising official interest rates until late 2010 or the first half of 2011, according to McQuaid.

As public finances remain under pressure and further funding needs to be raised, “the Government should take a leaf out of the books of other eurozone countries and consider selling off state assets,” he said.

“At the very least, the privatisation issue should be on the agenda for political debate.”

On the global front the economic situation has been improving since the second quarter of 2009.

That revival has been driven significantly “by the effects of the massive policy stimuli injected worldwide since late 2008”.

The recovery is uneven and conditions for sustained growth are fragile.

It remains “critical” from an Irish standpoint that the US economic recovery in particular holds up, if our anticipated export-led growth is to be achieved.

On that front he thought the outlook positive and “there is every chance the world’s largest economy will be back posting positive employment increases within the next couple of months”, he said, adding that any improvement in the labour market will help personal spending.

After a tough January, economic activity appeared to pick up here in February.

“Hopefully this can be carried on through the rest of the year,” he said.

The building industry will remain “under water and will continue to be a drag on overall GDP growth for some time to come”, he added.

Overall the near-term outlook for the Irish economy remains “very challenging, with questions still clearly hanging over the banking sector”.