Stronger euro to hit exports and recovery

The economy is likely to grow at a slower pace than previously expected this year as a stronger euro curbs exports, a Reuters poll showed yesterday, in a bad omen for Government efforts to cut the budget deficit.

The weaker forecast by economists comes just a day after the long-awaited deal was sealed to ease the burden of debt Ireland took on to rescue its financial sector.

Ireland’s gross domestic product is likely to grow by 1.3% in 2013, according to 10 economists polled by Reuters, down from a forecast of 1.5% in the last poll in December.

They stuck to their target of 0.8% GDP growth in 2012 ahead of preliminary statistics due in March.

That would be just the second year of growth since 2007 but would mark a slowdown from the 1.4% up-tick in 2011.

“Ireland will particularly feel the impact of the stronger euro given that almost a quarter of Irish exports are destined to the US and that the economy is almost fully reliant on exports to drive growth,” said Melanie Bowler of Moody’s Analytics.

“The strong euro versus sterling will also be a drag on Irish growth via reduced exports,” she said.

Exports will grow by 3.3% this year, the poll showed, down from a forecast of 3.7% in the previous survey, as economists expressed concern about the sharp strengthening of the euro against the British pound and the US dollar.

Sluggish domestic economy means Ireland is dependent on exports to supply growth, with personal consumption expected to fall 0.5% this year amid the Government’s continued austerity drive.

That would, however, be a significant improvement on an estimated drop in personal consumption of 1.3% in 2012.

“Domestic demand is once more going to be a drag on GDP, though not to the same extent as in the past few years,” said Alan McQuaid, chief economist at Merrion Stockbrokers.

“An improving labour market, particularly in relation to jobs being created, will be the key driver of consumer spending trends,” he said.

The unemployment rate will drop to 13.4% in 2014 from 14.6% at present, according to the poll, following a stabilisation of jobless figures in recent months.