Central Bank cuts growth forecasts as exports suffer

The Central Bank has cut growth forecasts for the economy as exports suffer on weak international demand.

Growth for 2012 is now said to have come in at an anaemic 0.2% for GDP and 1.8% for GNP.

However, the 2012 GNP figure was inflated by the impact of re-domiciled PLCs in this country that do not engage in any meaningful activity and do not create any employment, but because of double taxation agreements, their substantial profits are not taxed here either.

The GDP growth forecast for this year has been shaved by 0.5% to 0.7% and GNP has been cut from 0.6% to 0.3%.

Next year the GDP growth projection has been tapered from 2.5% to 2.1% and GNP is down from 1.6% to 1.3%.

The economy’s main trading partners are struggling to emerge from the downturn, which continues to weigh on demand for exports. The Central Bank also noted that the ‘patent cliff’ has caused a sharp reduction in pharmaceutical exports.

The banking sector is in the process of deleveraging, which is constraining the flow of credit to the economy.

Lending by Irish banks fell by €2.6bn or 2.4% in the six months to the end of April.

The banks have to work through roughly €18.1bn of residential mortgages which are in arrears by more than 90 days.

In March, the Central Bank imposed targets for the banks to put in place restructuring offers to distressed customers this year, and solutions next year.

The results of the first set of targets were received by the Central Bank this week, though there is no feedback on how these results compare with forecasts.

The banks have to undergo EU-wide stress tests next March to determine whether they need more capital.

The original plan was for the Central Bank to carry out the stress tests before the country exits the EU/IMF bailout programme in November.

Domestic demand is showing signs of stabilisation, though at very weak levels. The forecast for private consumption has been trimmed by 0.3% to -0.5% for this year.

“The out-turn for domestic demand was also quite weak in the first quarter of 2013,” it was noted.

“Consumer spending was particularly muted and this has motivated a downward revision in the forecast for consumption growth in 2013.”