THE CENTRAL Bank yesterday revised upwards its growth forecast for gross domestic product this year. However, it revised down forecasts for most other economic indicators in 2011 and 2012.
The bank’s economists also repeated earlier views that there were advantages to implementing a budget adjustment in 2012 of more than the minimum €3.6 billion the Government is obliged to introduce under the terms of the EU-International Monetary Fund bailout. Although the central bankers would not be drawn on precise figures, and warned against “dramatically” increasing the adjustment package, they gave three reasons to support their view.
First, at times of uncertainty, it was important to build a buffer they said. This would allow the Government to meet its deficit target next year – of 8.6 per cent of GDP – even if growth turned out to be lower than expected.
Second, a greater front-loading of the adjustment could boost confidence if businesses and households came to be less uncertain about future tax and spending changes.
The final benefit of front-loading the adjustment, according to the bank, is that the total amount of public debt accumulated in the years to come would be lower, leading ultimately to a smaller repayment burden.
On the controversial subject of upward-only rent reviews of commercial property, the bank said new legislation to allow tenants to seek cuts in rents “may intensify” the weakness in the market. Offsetting this, it noted in its quarterly bulletin, “increased flexibility in commercial rent contracts would further enhance the competitiveness of the Irish economy”.
On economy-wide measures of competitiveness, the bulletin also noted that further progress had been made in the third quarter of 2011 to regain lost ground, but “at a more moderate pace than previously experienced”.
The upward revision to the 2011 GDP forecast, from 0.8 per cent in July to 1 per cent in its forecast yesterday, reflects a better-than-expected growth outcome in the first half of the year. However, the 1 per cent forecast still implies a contraction in the economy in the second half of 2011.
The bank’s view of the underlying weakness of the economy was to be seen in its downgrading of almost all of its forecasts of other economic indicators. GDP next year is now expected to expand by 1.8 per cent, down from 2.1 per cent in July.
Gross national product (GNP), a narrower measure of economic activity which excludes multinational companies’ profits, was revised down for both this year and next.
GNP is expected to contract this year by 0.4 per cent and expand next year by 0.7 per cent (July’s figures were -0.3 per cent and +1 per cent respectively).
Much of the downgrade is attributable to the darkening international outlook, which the bank’s economists described as having “deteriorated quite significantly” since July.
On jobs and joblessness, the bank has not changed its forecast for 2011, but it is marginally more downbeat on 2012. It now believes the total number of jobs in the economy next year will grow by just 0.1 per cent. Lower employment growth is reflected in a higher rate of forecast joblessness next year. The bank believes that 14 per cent of the workforce will be unemployment in 2012. In July, it put the figure at 13.9 per cent.
