Noonan growth forecast doubts

FINANCE Minister Michael Noonan’s forecast for faster economic growth this year may prove too optimistic, according to a Bloomberg News survey.

Thu, 05 Jan, 2012 - 00:00

Finbarr Flynn, Bloomberg

Gross domestic product will rise by 1% in 2012, according to the median estimate of 11 economists surveyed by Bloomberg. Last month, Mr Noonan forecast expansion of 1.3%, quickening from an estimated 1% last year.

Cooling global growth is already hampering Ireland’s hopes of an export-led recovery. The nation’s economy shrank at the fastest pace in more than two years in the third quarter, as the euro-region crisis spread beyond Ireland, Greece and Portugal.

“The most worrying impact of the debt crisis on the Irish economy will be through reduced export demand,” said Conall Mac Coille, an economist at Dublin-based securities firm Davy. “It’s likely to have a significant impact.”

The euro-region’s economy will shrink 1% this year, as Europe’s leaders struggle to end the region’s debt deadlock, according to economists at HSBC Holdings Plc led by Janet Henry. Exports of everything from Kerry Group Plc dairy products to Kingspan Group Plc insulation amounted to about 101% of Ireland’s gross domestic product in 2010.

“It looks like the euro zone is heading for a recession,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “Given what is going on in the world as a whole, the risks are to the downside.”

The government is relying on exports to revive the economy, which shrunk about 15% between 2008 and 2010.

Home prices, which have dropped 46% since their 2007 peak, will fall 9% this year, according to the median estimate of seven economists.

Unemployment will probably average 14.2%, little changed from last year, according to the median forecast, as Noonan presses ahead with a fourth year of austerity.

Mr Noonan aims to reduce the budget deficit to 8.6% of GDP this year from an estimated 10% in 2011.

“What Ireland is doing is necessary but not sufficient for its recovery,” said Austin Hughes, chief economist at KBC Bank Ireland. “It can’t be sufficient because that is going to be determined by events outside our control.”