‘Economic growth will continue to slow in 2012’

GROWTH in the Irish economy will continue to slow in 2012 as export growth slows and consumer spending remains subdued as people fret about the economy and their jobs, according to Davy chief economist Conall Mac Coille.

The projections comes in the wake of a Samaritans survey which found 68% of people are concerned about having enough to live on in 2012, with 49% worried about losing their jobs or struggling to find work.

Mr Mac Coille said Davy expects that Irish GDP growth will slow in 2012 to below the 1.1% they are currently forecasting for 2011.

“Uncertainty and weakening confidence following the intensification of the European debt crisis are likely to delay investment plans by companies,” he said.

“Similarly, Irish households are less likely to reduce their high levels of savings given concerns about economic and employment prospects.”

Mr Mac Coille said savings rates are likely to remain depressed despite the squeeze on real incomes from the fiscal adjustment, which this year will be implemented through higher value added taxes.

However, he thinks underlying inflationary pressures are likely to fall back through 2012, helping to alleviate the squeeze on real incomes.

“The most worrying impact of the European debt crisis on the Irish economy will be through reduced export demand. Thus far, Irish trade in goods data up to October do not indicate any marked impact from the euro area slowdown on exports.

“But reduced demand is likely to have a significant impact on Irish exports in 2012.”

Mr Mac Coille said the outlook for the Irish economy remains uncertain: “Our central view is that the ECB/EU/IMF will continue to meet the funding needs of European sovereigns and banks so that a calamitous chain of sovereign defaults and banks runs is avoided.

“But those funding needs are likely to be met on an ad hoc basis so that they remain a key factor undermining confidence both in markets and in the wider economy.”

Mr Mac Coille said a more activist policy resp-onse that alleviated market concerns could lead to an improvement in economic prospects.

“EU agreements may eventually be sufficient to restore the risk-free status of European sovereign debt despite the haircuts applied to Greek sovereign debt in 2011.”