Economy ‘to grow by 1.8% next year’

GROWTH will return to the economy next year but Ireland will be one of the last European countries to recover from the recession.

This is according to the latest Pricewaterhouse-Cooper (PwC) economic analysis which found that the Irish economy is expected to contract by 1.3% this year and grow by 1.8% next year.

This compares to overall European growth of 1% in 2010 and 1.4% in 2011. PwC expects the economies of all European countries to grow this year except for Ireland, Greece and Spain.

The report said challenges remain in the Irish economy and this year is likely to see continuing weakness in activity and employment.

It said concerns about private and public debt are likely to restrain the scale of any emerging improvement.

It did note however that the corrective action taken by the Government, designed to stabilise the Irish deficit in the last budget, has gone some way to restoring confidence on the international markets.

The 2010 prediction is underpinned by high unemployment, investment activity projected to decline, particularly in the housing sector where there is a considerable overhang of new unsold housing and tight fiscal policy weighing down consumer spending and growth, the report said.

Partner with PwC Ireland, Ann O’Connell said: “Export led growth and a strong focus on innovation will be vitally important for Ireland’s economic recovery. At the same time a strong focus on our pipeline of foreign direct investment will be critical since consumer and government spending are likely to be constrained for some years to come.

“Finally, businesses and Government need to continue to work hard to restore our national competitiveness and reposition Ireland as a prime location of choice in which to invest and do business.”

PwC said the likelihood is that the worst of Ireland’s economic worries are now behind it and a sense of “cautious optimism” is beginning to materialise. It said the signs for economic recovery are promising but the extent of any good news should not be exaggerated. “Recovery, as it emerges, is likely to be gradual and modest,” it said.

The report added that despite having one of the highest levels of deficit in Euroland, Ireland enjoys a relatively low level of debt and has not seen its bond yield spreads follow the trend of either Greece or Portugal, indicating that the markets have also been potentially more reassured by the country’s austerity budget announced last December.