‘No recovery in jobs before 2014’

TIMELY cost reductions and strong fundamentals are driving a faster than expected economic recovery, but this will not translate into jobs until 2014 or later.

Ernst & Young’s EFF Summer Forecast suggests GDP growth of 2.8% in 2011 could lift Ireland from 15th to second in the eurozone’s economic recovery league, the greatest recovery rate of any eurozone member.

By the end of this year, GDP growth of -1% will see Ireland rank 15th of the 17 eurozone countries, marginally ahead of Portugal (-1.1%) but well ahead of last placed Greece (-4.8%). The next 18 months should bring steady improvement.

London-based senior economic advisor to the Ernst & Young Eurozone Forecast, Marie Diron, said: “Ireland still has low growth this year, but it will have a much quicker recovery than Spain, Portugal or other countries that it is now bundled with. Ireland has been more pro-active in reducing costs. It has had greater reductions in prices and wages than Greece or Spain.

“However, it is not all good news. The Irish recovery will be largely jobless. Unemployment will be at 13% this year, 12% next year, and may fall to 10% by 2013 or 2014. Some companies are hiring, but that aspect of the recovery will still be slower.”

The EFF report says that Ireland has been saved from a Greek-style collapse by a cumulative fiscal tightening of almost 9% of GDP between 2008 and 2011. Other eurozone economies are just introducing similar budgets cuts, amid growing public unrest and predictions of protests similar to those in Greece and Spain.

Irish inflation rates fell by 1.7% during 2009 and should fall another 1% this year. The longer term forecast is for Ireland to experience an average inflation rate of just 1.2% per year, the lowest inflation in the eurozone, second only to Greece, until at least 2014.

Ernst & Young senior partner Mike McKerr said: “Though the medium term outlook is for any recovery to be largely jobless, we forecast that Ireland’s short term economic recovery will outperform all members of the eurozone in the next 12-18 months. Our continued focus on falling costs remains key to Ireland’s ability to compete on international markets, attract foreign investment and restore its economic footing.”

Overall, the EEF predicts eurozone growth down to just 0.8% this year and 1.3% for 2011. Unless the eurozone tackles structural reforms that are the root of the challenges it faces, the risks of an economic “lost decade” like that of Japan in the 1990s are significant, particularly for countries in southern Europe.