Smooth exit from bailout forecast

Ireland is heading for a smooth exit from the bailout programme as GDP grows — delivering a huge political and reputational reward for the country, according to the latest Ernst & Young Economic Eye.

The Economic Eye summer report upgrades its GDP forecast for Ireland from 1.9% to 2.2% in 2014. This comes in the wake of a similar upgrade from the ESRI in its Quarterly Economic Commentary which forecast GDP growth of 2.7% in 2014.

In sharp contrast the Ernst & Young growth forecast for Northern Ireland remains weak — rising slightly to 1.7% in 2014.

Professor Neil Gibson, economic adviser to Ernst & Young Economic Eye forecast said: “Previous Economic Eye reports have correctly asserted ‘that Ireland is not Greece’. We’ve upgraded our forecast for 2014 because the Republic’s economy is seeing domestic demand at the early stages of recovery; its labour market is stabilising; deficit reduction is ahead of target; and the Government has already successfully returned to financial markets with borrowing costs dropping.”

Prof Gibson said these factors indicate Ireland will have a smooth exit from its bailout programme — making it the first eurozone country to do so.

“This would represent a huge political and reputational reward for the Irish Government and its citizens after many years of austerity.

Prof Gibson said Ireland now must decide whether to continue on the same tough austerity path; or ease off and exploit the fiscal space created by the more relaxed stance of the troika towards austerity.

“The question is not only whether to spend the estimated ‘available’ €1bn in the next budget that would allow deficit reduction to still remain on track. There is also the question of what competing spending areas additional fiscal resource should be spent on — public sector remuneration, capital projects, social sectors etcetera — and having in place ready-to-go spending programmes” he said.

However, the Economic Eye forecasts a slowdown in export growth to 2.9% in 2012 and 2.2% in 2013, as a result of weak growth levels in export markets such as UK, Germany and France.

“This could threaten any sustained economic recovery across the island,” Prof Gibson said.