European Commission praises 'robust' Irish recovery

[comment] Ann Cahill, Irish Examiner Europe Correspondent[/comment]

The Irish recovery is described as robust by the European Commission’s spring growth forecast but the size of the country’s debt following the bank bail-out is still a concern.

The drop in unemployment is the most visible sign of the Irish recovery but the efforts to cut private and Government debt and deficits will slow the sped of the recovery.

It warns that the 2014 budget must be rigorously implemented and should yield a small primary surplus in structural terms.

The country’s debt peaked at the end of last year at close to 124% - among the highest in the EU.

Recovery is spreading across the EU and is regionally balanced, involving most of the vulnerable member states according to the report. In the fourth quarter of 2013 only four countries still registered negative growth, compared to 15 a year earlier.

Economic expansion is set to continue and gain strength, with real GDP expected to rise above its 2008 level for the first time at the end of this year and in the course of next year in the euro area.

But in some of the vulnerable countries, GDP will remain far below pre-crisis levels.

The recovery is becoming more self sustaining as domestic demand gradually firms in most EU states.

But headline growth of -0.3% last year in Ireland was below expectations due to a surge in imports and lower than expected private consumption in the first quarter.

The falling output of the pharmaceutical sector had a continuing negative effect on merchandise trade while trade in services grew robustly, the report notes.

Real GDP growth this year is forecast at 1.7% thanks to the economic recovery in Britain and the euro area, while domestic demand is expected to boost growth for the first time since 2007.

The patent cliff in the pharma sector is expected to taper off and output is expected to stabilise by next year.

Growth is forecast to increase to 2.9% next year due to stronger domestic demand and improved export markets.

But the report warns of an increasingly uncertain external environment posing downside risks to net exports although it points out that the key trading partners are expected to grow. It also warns of the effect of any increase in energy prices.