Export growth set to weaken this year, predicts Ulster Bank

The economy will this year maintain its growth at a snail’s pace, as export growth slows and GDP grows by just 0.4%, the latest Ulster Bank Irish Economic Outlook says.

The forecast from Ulster Bank’s chief economist, Simon Barry, is one of the bleakest to date.

It is well below the Department of Finance view that the economy could expand by over 1% this year.

However, it is closer to the revised 0.5% growth forecast independently by the European Commission and the IMF.

The Irish Central Bank is forecasting growth of 0.8%, the ESRI 0.9% and Government-owned AIB is targeting GDP growth of 0.9%.

Mr Barry supports his view by arguing the debt crisis has hit European growth expectations hard, with the eurozone likely to contract this year and only very weak growth likely in Britain.

“This means that Irish export growth — the primary driver of Ireland’s recovery to date — is set to weaken this year, when we expect an increase of 2%, down from over 4.5% in 2011.

“In turn, this weaker export performance is likely to result in a deceleration rather than an acceleration in overall growth in 2012.

“We expect GDP growth in 2012 of just 0.2% as positive but slower growth in exports is expected to just outweigh further declines in domestic demand.

“Helped by some improvement in international demand, overall recovery momentum should pick up again gradually from 2013, when we expect growth of 1.5%,” he said.

The Ulster Bank chief economist expects that unemployment will increase, with the unemployment rate hitting 14.6% this year, up from 14.4% in 2011, as the overall pace of economic growth will be insufficient to generate sustained net job creation in 2012.

Mr Barry said despite a weaker outlook, the Irish economy is showing some encouraging signsof resilience and is setto outperform the overall euro area and many of its other member states in GDP terms thisyear.

“The same forecast set also shows that, even on our relatively conservative view on Irish growth prospects for the coming year, Ireland is set to outperform almost half of all countries in the eurozone, including not just Portugal and Greece, but also Italy, Spain, Belgium and the Netherlands all of which are expected to experience outright contractions in 2012 GDP.

“Indications of resilience can be found in monthly goods trade data which despite falling GDP in both the eurozone and UK showed overall expansion in Irish exports in the final quarter of last year, in both quarterly and annual growth terms,” Mr Barry said.

“In addition, the latest PMI survey results point to expansion of the Irish service sector in February and at a faster pace than in any of the other four countries in the eurozone for which comparable data are available, including Germany,” Mr Barry added.