The European Commission has cuts its growth forecasts for Ireland for 2011, saying economic growth continues to be dragged down by the collapse of the property market.
In its latest Spring economic forecast, the report revised down predictions for economic growth in Ireland, cutting it to 0.6 per cent in 2011 from previous estimates of 0.9 per cent.
Growth in 2012 is expected to reach 1.9 per cent. It also anticipates unemployment here will reach 14.6 per cent before falling back to 14 per cent in 2012.
The report said strong exports would lead the return to economic growth, but this would be “very modest”.
"This reflects the drawn-out adjustment process, during which domestic demand is expected to continue to act as a drag, while exports should continue to drive the recovery," the report said.
The commission also said Ireland, Greece and Portugal may see their debt loads exceed the size of their economies this year. It said Irish debt will reach 112 per cent, while Greece's debt, already the biggest in the euro's history at 143 per cent of GDP last year, will jump to almost 158 per cent this year and 166 per cent in 2012.
Portuguese debt will surpass total economic output for the first time this year, growing to 101.7 per cent of GDP.
"Greece is facing a very serious situation," EU economic and monetary affairs commissioner Olli Rehn said at a briefing. "Because of weaker growth last year than expected and the burden of that, there's a need to take additional measures of fiscal consolidation." The commission also raised its deficit forecasts for all three countries and predicted that the economies of both Greece and Portugal will shrink this year as the austerity measures choke growth needed to finance deficit reduction. Greece's economy did expand 0.8 per cent in the first quarter, snapping five straight contractions, separate data showed today.
Ireland's deficit, the biggest in the history of the euro region last year at more than 32 per cent, is forecast to fall to 10.5 per cent this year. Portugal, where the economy contracted 0.7 per cent in the first three months, will have a 5.9 per cent deficit, the commission said.
After more than a year of austerity, which included higher taxes and cuts in wages and pensions, Greece's budget deficit was still at 10.5 per cent of GDP last year. The shortfall will narrow to 9.5 per cent of GDP this year and 9.3 per cent next year, still three times the EU limit of 3 per cent.
The cost of insuring Greece debt against default reached a record 1,371 on May 9th, and its two-year bonds now yield 24.8 per cent, almost 10 percentage points more than its 10-year debt, indicating investors perceive more risk in lending to Greece for two years rather than a decade.
Greece's finance ministry blames the deeper-than-forecast recession for the government's failure to meet its 9.4 per cent deficit target last year and for a €1.9 billion revenue shortfall in the first four months of 2011. Record unemployment of 15 per cent and an inflation rate of almost 6 per cent have damped consumer and business spending.
Greek GDP contracted 4.5 per cent last year. The economy is forecast to shrink 3.5 per cent this year, according to today's forecast.
Athens next week will submit to parliament a €76 billion package of spending cuts and asset sales to help meet its fiscal targets.
Euro zone finance ministers meeting on Monday in Brussels are expected to tell Athens it must deliver on the fiscal and privatisation targets if it wants new financing next year.
