Analysts believe more pain on the way

FURTHER painful and difficult cuts are likely to be introduced over the next two years, according to analysts.

Many believe there are at least two more tough budgets ahead as the Government attempts to fix the country’s deficit. They said that decisions are likely to be hit by circumstances outside Ireland’s control.

Davy stockbrokers said events in Europe, such as the possibility of greater purchases by the ECB of European sovereign bonds, may influence Ireland’s economic prospects more than tax increases announced yesterday.

Davy economist Conall Mac Coille said: “As the economy enters a challenging 2012, more difficult and painful cuts may be required in 2013.”

Senior economist at Bank of Ireland, Michael Crowley, said achieving the targets on spending adjustments will depend on how Ireland’s exports perform. “Clearly there a few more years of austerity left with the fiscal deficit needed to be brought down to 2% by 2015,” he said.

Bloxham chief economist, Alan McQuaid, said most people were revising growth forecasts downward, so it would be difficult for the Government to hit its deficit targets.

“But if the eurozone crisis is sorted out we may get there. For the moment, it’s just a matter of wait and see.

“You have to assume austerity will last longer [than the current four-year plan] given the state of the world economy. All we can do is implement the measures we have and wait. We don’t have much choice.”

Chief economist with Kleinwort Benson Investors, Eoin Fahy, said: “The issue is how long [until] we get back to reasonably decent economic growth and I think it will be in three or four years after another two tough budgets. Obviously, that depends on some sort of lasting resolution to the eurozone debt crisis.”

NCB pointed out this was the seventh set of packages by Ireland since July 2008 to address the fiscal deficit. They said that including Budget 2012, the total amount of consolidation to date has been €24.5 billion, or 15.7% of 2010 GDP.

Further reductions are scheduled for 2013 and 2014 which will see capital spending fall to €3.25bn by 2015, a fall of over 60% from its peak level of €8.9bn in 2008.

Goodbody economist Dermot O’Leary said the fact the expenditure reductions were implemented in such a “piecemeal manner” highlights that the Government perceives there to be little in the way of “low-hanging fruit” still available.

“However, further expenditure reductions of €2.25bn must be found under current forecasts in 2013 also, so further tough political decisions have yet to be made,” he said.