IRELAND’S economy will not recover until the second half of next year, according to PricewaterhouseCoopers (PwC).
The accountancy firm expects the Irish economy to contract by 8.7% this year, following the 2.3% reduction in output in 2008.
The ESRI, in its last forecast, said the economy will shrink by 4.6% this year, but it is expected to update its expectations tomorrow and is likely to predict a larger contraction.
PwC, meanwhile, expects precautionary spending to increase as a result of rapidly rising unemployment, the drop in house prices and a lack of available credit.
Head of macro-economic consulting at PwC, Yael Selfin, said: “Given the sharp deterioration in the economic conditions in Ireland, it is unsurprising that confidence remains very low.
“The tax measures announced in the supplementary budget will compound the pressures on consumers and businesses in the short term. Due to the scale of the anticipated budget deficit, an upturn is likely to be export-led. As this will rely on economic recovery elsewhere, the outlook for the economy will remain negative well into 2010.”
PwC also said export businesses have been impacted by a collapse in demand in Ireland’s main trading partners, as well as an increasingly strong euro.
It said it is likely that the economic cost of the budget measures will be a more severe recession in the short term, as consumers and businesses face higher tax costs.
PwC’s latest chief executives’ survey showed that, by the end of the year, the majority of Irish businesses will have restructured or be in the process of restructuring operations, undertaken cost reviews and introduced workforce reduction initiatives.
At the European level, the contraction of the economy gathered pace in the fourth quarter of 2008, bringing the overall growth rate for the year to 0.9%, the lowest since 2003. The contraction was driven by a 4% fall in investment and a 6.7% reduction in exports, which are pushing unemployment higher.
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