Ireland ‘set for new era of urbanisation’

IRELAND is to become more European and less Mediterranean, with big industries opting to locate in cities over rural sites, according to a leading economist.

National Irish Bank (NIB) chief economist Ronnie O’Toole believes the Irish economy will move sideways this year, with a mild upturn to follow in 2011.

This sluggish recovery, he said, is partly due to Ireland’s over-reliance on rural construction jobs during the boom years, which has also created a huge overhang of rural housing.

That, however, is all about to change. Ireland is heading into an era of gradual but very definite urbanisation.

“There is a debate in Ireland that our cities are bloated, but that’s just not true when compared to the rest of Europe,” said Dr O’Toole. “In Denmark, 85% of people live in urban areas. We are only at 60%. For Ireland to reach Danish levels, one million Irish people would have to move from rural areas into our cities. That won’t happen overnight, but our rural spread is quite abnormal for a relatively rich EU country.

“As the economy does start to pick up, future growth will be based in cities. Multinationals are overwhelmingly coming to cities rather than rural areas. Now we will start to look more European and less Mediterranean.”

NIB yesterday released its Spring 2010 economic commentary. NIB also predicts that Dublin house prices will bottom out this year, the ECB will keep interest rates unchanged until 2011 as price pressures in the eurozone remain weak, and Ireland can expect GDP growth of 3.5% in 2011.

With consumer spending bottoming out, sentiment will gradually improve and fears over job security will recede. The construction sector, however, will remain in deep recession.

Dr O’Toole said: “We can take some motivation from the Finnish example, where 7-9% growth rates were followed by a crash. Following their recession in the early 1990s, Finland enjoyed a prolonged period of high growth as the savings rate plummeted, unemployment fell, and much of the slack in the economy got taken up. The same is likely to happen in Ireland.”