GDP forecast cut after visit from troika

The Government has received a clean bill of health from the troika in its eighth review of the economy as part of the bailout programme.

“We are pleased to confirm that Ireland has successfully completed the 8th Review Mission and we continue to meet all of our targets. To date over 160 commitments have been fulfilled on time and we have drawn down some 80% of the funding,” said Finance Minister Michael Noonan, following the review.

Mr Noonan told a press conference that the department was “marginally” downgrading its 2013 growth forecast although there would be no change to the fiscal targets.

The Department of Finance has a forecast of 2.2% GDP growth for 2013. The minister would not say how much the department was shaving off the forecast, but he said there would be no change to the fiscal deficit target of 7.6% for the end of next year.

The stockbroking firm Davy downgraded its GDP growth forecast for 2013 from 1.6% to 0.9%b on weaker demand for Irish exports.

There was €24bn injected into Irish banks in Mar 2011 as part of the recapitalisation process agreed with the troika. The stress tests were conducted by BlackRock Solutions. Mr Noonan said the capital buffers put in place would cover the losses among the banks on the back of mortgage arrears.

There were tentative signs that the mortgage arrears problem was stabilising, although it would take another few months before the size of the losses facing the banks became quantifiable, said the minister.

He urged the banks to deal with customers in mortgage arrears through the Mars [mortgage assistance relief service] and the proposed personal insolvency legislation.

“If there is a write down of debt, then it will be done by agreement between banks and customers. It will eat up some of the capital but there is enough capital in the system.”

The Justice Committee which was formed to come up with the personal insolvency legislation had originally proposed a ceiling of €10m in debts for people using the scheme. The ECB wanted a limit of €1m on debts. But Mr Noonan said the troika was happy with the Government’s decision to impose a limit of €3m.

The troika said following the review that the Irish economy remained on track to meet bailout targets even though economic growth would be subdued on a still struggling domestic economy and weaker demand for Irish exports. It has a growth target of 1% in 2013.

“However, unemployment remains unacceptably high, especially among the youth, making job creation and growth a key priority. Accordingly, plans are progressing to utilise resources from the European Investment Bank, the National Pension Reserve Fund, and private investors to finance job-rich projects in several sectors.”

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