Central Bank ups growth forecast to 1%

IRELAND’S economy will grow more than previously expected this year, according to the Central Bank.

It also believes that prices will rise 0.7% next year and expects it to be late 2012 before there is employment growth.

It expects the unemployment rate will be 14% at the end of 2012 compared with 14.2% at the end of 2011.

The Central Bank said it would be a good idea for the Government to bring forward some of its planned budgetary adjustments, arguing that it would make the country’s finances more resilient to the possibility of negative shocks.

The bank yesterday raised its outlook for growth this year from 0.8% to 1%, but cut its forecast for next year to 1.8% from 2.1%.

Second-quarter gross domestic product (GDP) grew 1.6%, recent figures stated.

The bank said the external environment, which is vital to Ireland’s booming exports was still characterised by turbulent financial market conditions and slowing growth. It expects exports to grow by 5.3% this year, well down from its previous forecast of 6.4% while it said growth will stay steady at 5.2% in 2012, down a percentage point from before.

“As regards the public finances, developments for the year to date indicate that the adjustment remains on track. The precise outturn for this year, along with the indications for growth at budget time, will dictate the extent of the fiscal adjustment required to reach the deficit-to-GDP ratio target of 8.6%. It is difficult to say at this stage whether this will be the €3.6 billion adjustment currently projected under the EU-IMF programme, or whether a larger adjustment will be needed to achieve this target,” the Central Bank said.

Personal expenditure is forecast to decline 2.6% this year and 0.8% next year.

Finance Minister Michael Noonan said that he was pleasantly surprised that the Central Bank only marked down its growth expectations for 2012 by around a quarter of a percent. “I was expecting with the decline in the economies of our customer countries to which we export that there would be a more significant markdown but of course the Department of Finance will have to form their own independent opinion.”

The Central Bank said that while the general reduction in yields on Government bonds was a positive, they remained at levels inconsistent with a return to market.