Exports only bright spot in economy, says Davy

EXPORTS will be the only bright spot in the economy next year which will continue to endure weak growth, according to Davy Research, which has cut its forecasts for this year and next.

Gross domestic product (GDP) will rise by just 0.3% this year. Next year that figure will rise to 1.9%, the independent broker said.

GNP growth, which excludes the earnings of foreign multinationals, will decline by 1.5% in 2010 and will grow by 1.2% next year, well down on its earlier forecasts of 2.8%. The firm said the rate of economic decline has slowed, but adds that growth prospects for the economy “remain subdued”.

The poor figures offer little hope to the Government who met over the last two days to thrash out the level of cuts needed to be introduced in next year’s budget.

It is devising a four-year plan to get the budget deficit down to 3% of GDP by 2014.

Weaker than previously expected growth forecasts makes that job even harder to achieve.

Last week the Economic and Social Research Institute (ESRI), the Government’s think tank, warned if the correction was too sharp it could tip the economy into a protracted recession. It suggested an adjustment period of six years to push the target date out to 2016 to comply with EU regulations.

This year the deficit will be about 12%, but that rockets to 32% when the cost of the €50bn bank rescue deal is included.

Davy said the budget cuts will “weigh on consumer-spending power and sentiment.”

“Growth prospects remain subdued,” according to Aidan Corcoran, economist with Davy.

He added: “The growth differential between the two measures of output reflects our assumption that exports will be the only positive contributor to growth.”

Mr Corcoran also said he expects Ireland’s unemployment levels to remain high for some time as the economy will struggle under the weight of budgetary corrections it is facing in the years ahead.

The jobless rate was at 13.7% in September, close to a 16-year high.

Davy said the 7.2% annualised volume growth of exports in the first half of 2010 “is unlikely to be repeated in the face of currency headwinds and a possible turn in the global inventory cycle.”

Export growth volume of 4.9% is predicted for next year, compared with 6% previously.

“Aggressive fiscal consolidation will limit growth in 2011, but will enable a stronger recovery thereafter,” said the report.