Experts cut economic growth forecasts

IRELAND’S business leaders and key economists believe the economy will grow this year and next, but at a slightly slower pace than earlier forecasts.

This coincides with the thinking of Finance Minister Michael Noonan, who yesterday said Irish growth forecasts have had to be reduced, but were still positive for next year because of the country’s export-driven economy.

The Department of Finance will deliver fresh forecasts today, which Mr Noonan said will show how the Government will reduce the budget deficit to a rate of under 3% of GDP by 2015. Mr Noonan said the data should help restore consumer and business confidence to enable them to spend to boost the domestic economy.

Yesterday, a Reuters poll of Irish economists found that while the outlook for Ireland’s economy has weakened due to a drop in consumer demand and slowing global growth, the median forecast for this year’s GDP growth is now 1.25%, down from 1.4% and next year’s growth is expected to be 1.5% of GDP, down from 1.65%.

And property consultant CBRE’s 14th annual survey of the “top 1,000 CEOs in Ireland” found that 90% of the respondents believe that the Irish economy will grow in 2012.

“The largest proportion of respondents (47%) believe that the economy will grow by up to 1% next year while a further 43% are more optimistic, believing that a growth rate of between 1% and 2% is achievable. Only 1% of the top 1,000 chief executives who responded to CBRE’s survey believe that growth of more than 3% will be achieved in the Irish economy in 2012; 8% of respondents expect the Irish economy to decline next year,” it found.

The economists surveyed now expect retail sales to fall 2.25% this year, compared to a drop of 1.9% previously and they have scratched hopes for a slight recovery next year. Retail sales are set to drop 0.8%, according to the median forecast of eight economists, compared to a 0.1% increase in a previous poll.

The bleaker outlook for domestic demand should discourage the Government from ramping up austerity measures, as recommended by the administration’s own fiscal watchdog, most economists said.

Chief economist at Bloxham Stockbrokers, Alan McQuaid, said that if consumer confidence is to be restored in Ireland then the employment situation needs to improve and any measures that can be taken by the government to boost the labour market can only be good news in the long-run.

“The bottom line is that households need to be incentivised to spend their money either directly, or indirectly through targeting the labour market with economic initiatives to boost employment numbers,” he added.

Four out of five economists said the Government should not follow the advice of its fiscal council to overshoot the fiscal adjustments required under its EU/IMF bailout to boost market confidence.

One-in-three of the chief executives surveyed said that their staff numbers will remain the same in 2012, 39% of respondents expect to increase their staff numbers next year, but 30% of respondents expect to be reducing their staff numbers in 2012.