Cut in growth forecast likely

THE Government may cut at least 1 percentage point off its 2012 economic forecast as a global slowdown curbs the export-led recovery, according to people familiar with the subject.

Finance Minister Michael Noonan said last month that Ireland may cut its GDP forecast from April’s 2.5%.

The Government will reveal its medium-term budgetary outlook next Friday, and may lower the forecast, according to sources who declined to be identified because the data has not been finalised.

“Work is under way on the medium-term fiscal statement,” said Eoin Dorgan, a spokesman for Mr Noonan.

Slowing global economic growth and Europe’s debt crisis is hampering the region’s recovery.

French President Nicolas Sarkozy said on Thursday his country’s economy will grow by about 1% next year, lowering an August forecast of 1.75%.

Mr Noonan has said the Government may need more than the planned €3.6 billion of budget savings, though “not an awful more”, to hit its 8.6% fiscal deficit target.

“Ireland is showing the characteristics which are required to put the economy back on the right track,” said Brian Devine, an economist at NCB Stockbrokers in Dublin. “However, one must not forget that Ireland is recovering from the largest credit and housing bubble in OECD history.”

While Irish bonds delivered the world’s best returns during the past three months, they have pared gains on concerns that slowing global growth will derail the Government’s efforts to revive its fortunes through exports.

The yield on debt due in 2020 rose 52 basis points in October to 8.26%, albeit down from 15.5% in July. The Government extended emergency bank laws as it prepares to inflict losses on the remaining junior bondholders at Bank of Ireland, the country’s biggest lender.

The Oireachtas widened the Credit Institutions (Stabilisation) Act 2010 last week to allow the finance minister seek a court order imposing losses on subordinated bondholders on “systemic and financial stability issues”, said the Department of Finance spokesman.