BoI predicts 30,000 jobs lost in recession

JOB numbers will fall 30,000 next year moving the Irish economy away from full employment for the first time in a decade.

The findings are contained in a new economic report which forecasts a decline in the economy of 1.6% this year, with a further recession next year.

The forecast is from Dan McLaughlin, chief economist, Bank of Ireland, who until recently was one of the most bullish on the economic outlook for Ireland.

His forecasts are still better than some projections, but overall it adds to the build up of negative forecasts emerging rapidly of late.

Some forecasts say the fall could be as high as 2.5% or more given the housing market collapse.

McLaughlin says the economy has been hit by three shocks that have seriously undermined its previously strong base.

The housing correction, which precipitated a 30% fall in house completions over the first half of the year, and an 18% fall in total construction output was the first upset.

Then came the shock of the oil spike over the first half of 2008. That kept inflation high and prevented the type of easing in monetary policy normally seen in a cyclical slowdown, he said.

Shock number three was the credit crunch which also forced interest rates higher than otherwise, he said.

As a result global and not just Irish growth is slowing sharply, with the US, Britain and the euro zone all in recession, he said.

“The net result is that the Irish economy will contract by 1.6% this year, its first decline in national income in 25 years, with net exports providing the only substantial support to activity.”

The 2009 outlook is surrounded by more uncertainty than usual but a further fall in output is “the most realistic assessment at this juncture”.

A further sharp fall in construction spending looks inevitable given forward indicators of house building, and household income will be squeezed by lower wage growth, falling employment and a higher tax burden.

On the plus side McLaughlin sees inflation falling significantly.

That will clear the way for a sharp rate reversal from the ECB which he forecasts will cut rates to 2% from their current levels of 3.25%.

With price concerns easing significantly the ECB can cut rates aggressively in the face of falling euro zone output. Rates fell to 2% in the last cyclical downturn and McLaughlin thinks a reversal to the 2% figure in the current downturn in definitely on the cards.

A separate economic report from DKM Consultants pulls no punches however and warns of a major reversal in the economy in 2009.

It predicts GNP will contract by 2.1%, which is a 5% reversal on its June 2008 forecast. Just three months ago, many forecasts were predicting real growth of between plus 2% to plus 3% in GNP, it said.

“Obviously the events of September and October in financial markets have overtaken those projections,” it said.

DKM’s Snapshot of Economic Forecasts gives a concise outlook for the Irish economy based on the latest predictions from 15 leading Irish and international sources including the IMF, EU and OECD.


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