Central Bank downgrades growth forecasts as export outlook dims
According to its latest quarterly review of the economy, the Central Bank sees GDP growth of 1.2% this year, which is down marginally from its previous estimate of 1.3%.
Even though there are signs that the global economy is making a tentative recovery, the country’s main trading partners continue to struggle.
Exports are now expected to grow by 2.5% this year compared with the previous forecast of 3%. However, the Central Bank expects a pick-up in exports next year to reach a growth rate of 5%. Consequently it expects GDP to grow by 2.5% in 2014.
The Central Bank also sees a stabilisation in domestic demand for the first time in five years. Domestic demand is forecast at 0% this year and 0.4% next year.
The IMF released its ninth review of the economy on Wednesday. It forecast growth to reach 1.1% this year and 2.2% next year. However, it warned that if growth failed to materialise over the next few years, then debt-to-GDP could reach 134% by 2018.
Central Bank chief economist Lars Frisell said the IMF report was not as negative as it was portrayed in the media. It highlighted the challenges facing the economy, he said.
“The big uncertainty is mortgage arrears. It is essential that the banks deal with this forcefully. But there is no magic formula for a sustainable solution.”
Finance Minister Michael Noonan has said that he would like to hold the next round of bank stress tests at the same time as the EU-wide European Banking Authority stress tests next March.
The IMF said it would like to see the stress tests conducted before the country exits the bailout programme in November.
Mr Frisell said the timing of the stress tests still has to be determined. The Central Bank’s working assumption is that the banks have enough capital to see them through the stress tests.
“But we cannot rule out that they will need more capital,” he said.
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