Ireland under pressure on meeting fiscal bailout goal

WEAKENING domestic demand and the threat of a European recession risk undermining Ireland’s hopes of meeting its medium-term fiscal goal under an EU-IMF bailout, a Reuters poll showed yesterday.

Ireland has vowed to get its budget deficit — the worst in the industrialised world — under a European Union limit of 3% of Gross Domestic Product (GDP) by 2015 by implementing around €33 billion in cutbacks and tax hikes, equivalent to around a fifth of annual economic output, over eight years.

But the median estimate of nine economists polled by Reuters is for the deficit to fall to 3.2% of GDP compared to 2.9% in the previous poll, which is the current government target.

Ireland’s success in so far meeting its fiscal goals has seen it held up as a role model for other debt-ridden states, but Europe’s rapidly worsening debt crisis could throw Dublin off course if it means the currency bloc, an important trading partner, falls back into recession.

“In view of the degree of uncertainty about the outlook for the euro area, it’s very difficult to be any way sure how the Irish economy will fare in 2012,” said Austin Hughes, chief economist at KBC Bank Ireland.

“What we do know is that the restraining influences of a poorer global backdrop and another tough budget at home will dampen growth and push back any meaningful recovery for at least another year.”

Export-led growth should see Ireland post its first full-year of GDP growth in three years in 2011 with economists forecasting GDP growth of 1.3% up from 1.25% previously.

Ireland’s third-quarter GDP data will be published later this month.

But if exports growth weakens, as expected, next year that will further delay a recovery in the domestic economy.

Economists on average expect Ireland’s economy to grow by around 2.8% between 2013 and 2015 in line with government forecasts.

“Although the export sector will remain the key driver of Ireland’s economic recovery in the short-term at least, and exports on their own account for over 100% of GDP, the reality is that when imports are taken into account, net exports are only equivalent to between a fifth and a quarter of national output, with the consumer the biggest part of GDP at more than 50%,” said Alan McQuaid of Bloxham Stockbrokers.

“So therefore if the economy is to regain significant traction over the next few years, then weaning consumers off their savings and getting them back into the shops again and into spending mode is essential.”