OECD: Unemployment to peak this year

UNEMPLOYMENT here should peak this year, with inflation returning in 2011 when the economy will grow by 3%, the Organisation for Economic Cooperation and Development has predicted.

The OECD said that after a severe recession in 2009, the economy appears close to a turning point and believes Irish growth next year will outpace average growth of 2.7% in the 30 countries in the Paris-based body.

“The recovery will nevertheless be externally driven, as unwinding the imbalances created during the economic boom will continue to restrain consumption and investment for some time. This suggests that a broadly based revival will take some time to emerge. By contrast, the contribution of exports to growth will be increased by the improvement of external competitiveness,” the organisation said yesterday.

The OECD expects Irish unemployment to peak at 13.7% of the workforce this year, dropping to 13% next year. The CSO’s standardised unemployment rate stood at 13.4% in April. It expects the consumer price index to rise 0.8% in 2011, after a fall of 1.4% this year.

However, the OECD believes the 2010 budget has an extremely important contribution to make in stabilising the public finances.

“In particular, the overall emphasis on reducing spending rather than increasing taxes is appropriate.

“There will be a need for ongoing monitoring and fiscal discipline. Ireland’s deficit remains very high and it is now important that the Government continue to hit its fiscal targets to ensure that confidence and credibility is maintained.

“The injection of public funds into the banking system is an important step in restoring the financial sector to health and getting credit flowing again.”

Globally the OECD has raised its growth forecasts for this year and next as emerging economies such as China outpace debt-burdened developed countries.

The economy of the OECD’s 30 members will grow 2.7% this year, more than the 1.9% it predicted in November. Including non-members such as China, the global economy will expand 4.6% this year and 4.5% in 2011, compared with an average of 3.7% during the decade through 2006.

OECD secretary-general, Angel Gurria, said this is a critical time for the world economy. “Coordinated international efforts prevented the recession from becoming more severe but we continue to face huge challenges. Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path. We also need to take into account the international spillovers of domestic policies. Now more than ever, we need to maintain cooperation at an international level.”