IMF positive despite slower growth

THE International Monetary Fund (IMF) says there are signs of a turnaround in Ireland, but it has downgraded its growth expectations for the economy.

Although it sees some positive signs in Ireland it expects the economy to grow 0.5% this year compared with a previous forecast of 0.9% in December 2010.

It said that a decision on changing the interest rates charged to countries under the EU’s bailout rules is “urgently needed”.

In its World Economic Outlook report the IMF said it expects consumer prices to rise in Ireland this year and next by 0.5% and the employment rate to hit 14.5% in 2011. It expects unemployment to then fall to 13.3% in 2012.

It said the economy will grow by 1.9% in 2012 following 0.5% growth in 2011. Its predictions for 2011 are significantly lower than that of the Department of Finance which predicted in December that the economy will grow by 1.7% in 2011.

The ERSI said in January the economy would grow by 1.5% this year.

The IMF said a “painful but more gradual process” of external adjustment is under way in Ireland, Greece, Portugal and Spain.

It said the current account deficits of Ireland and, to a lesser extent, Spain have moved toward more sustainable levels, but they remain “excessively large” in Greece and Portugal, at 10.4% and 9.9% of GDP, respectively, in 2010.

It said these four countries initially adjusted through import contraction, but exports started contributing to the adjustment in 2010.

Exports as a share of GDP rose by much more in Ireland last year, according to the IMF, which it said possibly reflects the greater decline in unit labour costs.

“A number of policies can contribute to the remaining adjustment that will be required, and many are already being implemented.

“In Greece and Ireland, they are an integral part of the authorities’ adjustment programmes, which are supported by the international community,” the report read.

When looking at the wider economy the IMF said the threat of further oil-price increases has become a “key downside risk” for global growth.

It said the recovery is “stronger” and the world economy will expand 4.4% this year and 4.5% in 2012, leaving forecasts from January “nearly unchanged”.

It raised its oil-price prediction to $107.16 a barrel in 2011 from $89.50 in January.

The IMF said the recovery has become more “self-sustaining” adding that global activity seems set to accelerate again.

The IMF cut the 2011 growth forecast for Britain to 1.7% from 2% for this year and lowered its prediction for the US to 2.8% from 3%.

It increased its prediction for the euro region, expecting 1.6% growth in 2011 and 1.8% in 2012.