Euroframe:Pressure on the dollar is likely to put Irish exporters under pressure in the coming two years, a leading group of European economists predicted yesterday. However, European interest rates are unlikely to rise by more than a quarter percentage point, the ESRI said yesterday.
The latest forecasts the Euroframe forecasting network - in which the Economic and Social Research Institute (ESRI) participates - echo the consensus that the European Central Bank will raise its key interest rate again this year - but only once.
Euroframe predicts growth in the United States will slow modestly from 2.4 per cent this year to 2.3 per cent in 2008. Growth in the euro zone will also slow slightly from 2.5 per cent this year to 2.2 per cent in 2008.
But the forecast also predicts that the rising US current account deficit - which measures the difference the amount by which imports exceed exports - will forces the dollar to depreciate in order to make US exports more affordable. From a present rate of around $1.32 to the euro, it forecasts the dollar to fall in value to $1.35 by December and further to $1.40 by mid-2008.
"Although the impact on euro area as a whole may be limited, the impact on Ireland will be stronger given our relatively stronger trade links," ESRI economist Adele Bergin said yesterday.
Separate analysis published by the ESRI yesterday suggests that Ireland has the largest share of US exports of any euro zone economy. Across the euro zone, inflation will moderate to 1.8 per cent next year, just below the European Central Bank's (ECB) reference value of 2 per cent and this will ease pressure on the ECB to increase its interest rates.
While predicting a further quarter percentage point rise next June, the forecast says this will be the last such increase in the current cycle.
Despite moderating growth, euro-zone unemployment is set to continue falling, from 7.2 per cent this year to 6.8 per cent in 2008, as economic activity becomes more oriented towards personal consumption.
