THE WORST of the downturn is behind us and the economy could return to positive growth by the second half of 2010, Bloxham stockbrokers predicted yesterday. However, house prices may fall by a further 15 per cent before hitting their bottom.
Presenting a quarterly economic outlook, Bloxham chief economist Alan McQuaid said the rate of decline in economic activity was slowing. He was now “less pessimistic” about the country’s prospects.
As a result of the improved outlook for the US and Britain that has emerged recently, Mr McQuaid has revised his forecast for GDP contraction in 2009 to 8.5 per cent from 9 per cent given Ireland’s significant dependence on trade with those two key economies.
However, although he expects the economy to grow in the second half of 2010, it will be 2011 before growth for the year as a whole returns to positive territory.
And although the pace of deterioration in the labour market has slowed, unemployment is predicted to peak at 15 per cent next year.
The Irish property market is unlikely to recover any time soon, the outlook predicted. Mr McQuaid expects that house prices have another 10 to 15 per cent to fall before they bottom out.
The risk of entrenched deflation is now the greatest threat to the economy, he warned. The annual rate of deflation hit 4.7 per cent in May, and is forecast to average 4.5 per cent for 2009.
Although falling prices and wages will boost Ireland’s competitiveness, the worry is that the economy is heading for a “Japan-like prolonged deflationary spiral”, which would push up the cost of servicing debts for both businesses and consumers.
Mr McQuaid also warned that, although there may be justification for holding a general election now in light of the Government’s dismal showing in the recent local and European elections, it would do more damage than good to the economy.
“The longer a solution to the banking crisis is delayed, the worse for the economy.”
The Government has not exactly covered itself in glory, he said, but it was now taking the steps needed to get the public finances back in order.
It must, however, avoid over-taxing consumers, and should consider the sale of State assets. Such a move could raise between €8 billion and €10 billion.
He added that scrapping the National Asset Management Agency (Nama) plan or fully nationalising the banks would only serve to add uncertainty to the financial sector rather than improve the situation.
