OECD predicts Irish upturn for 2013

AN economic upturn is expected to unfold in Ireland in 2013 but the eurozone could be entering a recession.

The Organisation for Economic Co-operation and Development (OECD) said Ireland has made good progress in redressing imbalances, with the help of the EU-IMF programme.

This comes as NCB stockbrokers said they don’t believe that Ireland will lose its corporate tax rate.

However, the OECD said the eurozone crisis is one step away from plunging advanced economies into an “abyss of recession” and even depression. The eurozone is already in slight recession and the credibility of governments to keep it balanced on a high wire has been “stretched to the limit”.

The OECD said Ireland’s export markets are weakening “significantly” which, combined with needed fiscal tightening, is expected to result in modest growth in 2012, continued high unemployment and low core inflation. The country should adopt additional austerity measures if the outlook worsens.

The organisation has more than halved its forecast for Irish gross domestic product (GDP) growth next year to 1% from 2.3% due to dampening demand for Irish exports. In contrast the IMF forecasts Irish GDP growth of 1.5% in 2012 and the Government expects 1.6%.

The OECD still expects Ireland to “broadly” meet its budget deficit goals due to a cut in the cost of the country’s European rescue package. But it said that a further deterioration in external demand as well as the impact of high private sector debt and Irish banks’ efforts to sell off assets could all further hit the country’s recovery prospects.

If such risks materialise, the OECD recommends adopting additional austerity measures, accelerating structural reforms including opening up the electricity market to competition and reforming the social welfare system to help cut unemployment. On a global level the OECD said the economic outlook has deteriorated “significantly”.

Meanwhile, NCB said Ireland will not be able to fund itself entirely on its “own two feet” come 2014 and, therefore, will require further EU assistance.

“The Irish economic recovery has been and will continue to be two-tiered. Economic growth will be driven by the export sector before multiplier effects feed through into the domestic economy. This is helped by the composition of Ireland’s exports: high-value added tech and pharma products and agri products.”

It said Ireland and its banking sector will continue to be heavily reliant on the EU/ECB. NCB said despite progress to date, Ireland is still “extremely vulnerable” to a further slowdown or fatigue in its fiscal consolidation measures.