AIB Corporate Treasury has dropped its growth forecast for the Irish economy to 7 per cent from 8 per cent, citing a sharper-than-expected downturn in the global economy and the outbreak of foot-and-mouth disease as the main reasons for its more pessimistic outlook for 2001. While this was the slowest GDP growth since 1994, Ireland was still well ahead of its international peers, AIB group treasury chief economist John Beggs said in a quarterly economic focus.

Global growth will be much weaker this year with GDP dropping to 3.25 per cent from 5 per cent in 2000, with a weaker US economy leading the fray. However, AIB said it was not anticipating a recession in the US and expected a moderate strengthening of activity in that economy in the second half of the year.

On the home front AIB expect Irish inflation, as measured by the CPI, to fall to 3 per cent by end-2001. It anticipates a headline rate averaging 4 per cent and a rate of 3.5 per cent, ex-mortgages.

Historically low Irish interest rates will continue to give exporters the edge and help offset the rise in Irish unit wage costs in euro terms.