Economists cut growth forecast for 2013

Ireland’s economy will grow at a slower pace than previously thought next year as employment and house prices take longer than expected to recover, according to economists polled by Reuters.

Ireland, which returned to long-term bond markets ahead of schedule in July, has avoided joining most of the eurozone in recession but desperately needs growth to accelerate so it can hack away at a debt pile set to peak close to 120% of economic output next year. Gross domestic product (GDP) will grow by 1.6% next year, according to the poll of ten economists, down from a forecast of 1.8% in a poll last month.

According to a draft document seen by Reuters, the European Commission cut its 2013 growth forecast for Ireland to 1.4% from 1.9% — far lower than the 2.2% predicted by the Government.

“We’re moving ahead but at a snail’s pace,” said Alan McQuaid, economist with Dublin’s Merrion Stockbrokers. “It will probably be 2014 before domestic demand makes a positive contribution to growth, and while the export sector has been the main driver of economic activity, it is vulnerable,” he said.

Exports will grow at a solid 4% next year, personal consumption will be flat before growing by just under 1% in 2014, the survey found. Residential property prices, whose collapse by 50% has shattered consumer confidence and forced the recapitalisation of the banks, will take longer to recover, the poll said.

Property prices, which the last poll indicated would be broadly flat in 2013 before returning to growth, will fall 4% next year and will fall more sharply this year than previously thought.

Government data this week showed the second month of growth in prices in five years, but showed they fell 13.6% in the year to July.

Economists say at least a stabilisation of property prices is vital to allow both the banks and households to get back on their feet and generate the economic growth needed to begin to pay off debts that have forced an EU rescue of the country.

The economists marginally increased their median forecast for unemployment to 14.8% at the end of this year and 14.1% at the end of 2013.

But the economy will manage to avoid recession when second quarter figures are released this month, the poll said.

GDP is set to expand 1.0% in the second quarter on a quarterly basis, bouncing back from a 1.1% contraction in the first, it said.

After Ireland brought to €10bn the amount it has sliced off its post EU/IMF bailout borrowing needs following the issue of new debt this month and last, five of six economists who answered said Ireland would not need a second bailout.

The Government is on track to meet its deficit targets under the bailout programme, with the budget shortfall shrinking from 8.3% of GDP this year to 3% in 2015, according to the median forecast.

Reuters