Deficit target 'ambitious'

The euro zone crisis could push Ireland off track in meeting its deficit targets and could prompt further harsh austerity measures, a new economic report said today.

Bloxham's quarterly economic outlook said Ireland's target deficit for 2012 of 8.6 per cent "looks ambitious" given the weakening global economy and the ongoing euro zone crisis.

Analysts predicted the country's economic recovery will slow next year as the world economy contracts and export demand weakens.

"The slowdown in the world economy is bad news for Ireland and the country's growth prospects over the next 12 months," Bloxham chief economist Alan McQuaid.

Bloxham cut its forecast for next year, projecting real gross domestic product growth of 1.1 per cent, compared with previous estimates of 1.5 per cent.

Although Ireland's recovery is at risk from the worsening economic outlook, it will continue to drive recovery in the short term, as domestic demand remains poor.

Bloxham said Ireland's export sector, focused on "recession-proof" goods such as pharmaceuticals, is in a better position than other euro zone peripheral countries to grow once the work economy behind to gather pace.

"Amid the moderation in external demand, some loss of momentum in Irish merchandise export activity is expected in 2011 and 2012," the report said.

"Nevertheless, we believe that, as was the case during the 2009 collapse in global trade flows, the sectoral composition of external demand will shift in favour of goods
which Ireland specialises in, especially the likes of pharmaceuticals."

The merchandise export sector may also get a boost from increasing competitiveness gains, it said.

However, the outlook remains bleak for consumers, with further cuts looming and unemployment remaining high.

The report predicts consumer spending will have fallen by 2.3 per cent in 2011, with savings remaining high in 2012 as households stay cautious about spending. Real spending could fall as much as 1 per cent in 2012 and remain flat in 2013. Although it may recover in 2014, it will be modest.

"It is only when personal spending and investment start to pick-up again that broadly-based employment growth will re-commence," Bloxham said.

It said the labour market was a cause for concern, and would likely remain under pressure for some time. Bloxham predicted unemployment would fall to 14 per cent next year, and 13.5 per cent in 2013.

"All in all, we think it is going to be a very slow process as regards tackling the huge
unemployment problem, and it will be a number of years before the jobless rate falls back into single digits," Mr McQuaid wrote.