ESRI: Ireland to use new bailout fund

Ireland is likely to have to tap the eurozone’s new rescue fund once its troika bailout programme runs its course next year.

That is the opinion of economic think-tank, the Economic and Social Research Institute, which has also marginally reduced its growth forecast for the economy.

In its latest quarterly economic commentary, published yesterday, the ESRI said that it now expects the Irish economy to grow — in GDP terms — by just 0.6% this year, and by 2.2% in 2013. Previously, the institute had forecast GDP growth of 0.9% for this year and 2.3% next.

Its revised forecast for this year is now below the Government’s official estimate of 0.7%.

It added that unemployment will only marginally improve in 2013, from 14.9% this year to 14.7%.

Long-term unemployment remains a concern, the institute said.

Domestic demand is also set to continue contracting this year, with increases in consumer confidence not necessarily leading to a widespread recovery in consumption, it added.

Speaking yesterday, the ESRI’s associate research professor, Joe Durkan said the Government will probably need to raise extra funds from the new European Stability Mechanism — the successor to the European Financial Stability Facility — although he stressed this should not be interpreted as a second emergency bailout agreement for the country.

However, despite its previous utterances about the Government potentially having to make steeper budgetary adjustments in the coming years; the ESRI said that the 2012 fiscal targets “will be met”, with the targeted budget deficit — of 8.3% of GDP — being hit; before lowering again to 7.5% next year. The institute, however, said that meeting next year’s targets will be “more difficult to achieve”.

Research officer, David Duffy, also said that the sale of state-owned assets may only provide limited benefits to the economy and that while broad fiscal stimulus measures in the eurozone may help Ireland, the Government should not attempt to stimulate domestic growth through public spending.

“In a small open economy such as Ireland, much of the impact goes directly on imports and does not lead to sustained growth. In order to grow, the Irish economy needs competitiveness gains and export growth.”

Mr Duffy said that the ESRI’s latest forecasts are all based on the wider eurozone debt crisis not worsening any further, adding that the financial crisis in the single currency region “still needs to be resolved, convincingly.”