The Minister for Finance has indicated for the first time that the Budget forecasts for economic growth will be cut. Mr McCreevy's comments came as new data showed the value of exports fell by over one-fifth in the first quarter of this year.
Exports in the January-March period were 21 per cent down on the same period last year, according to the Central Statistics Office (CSO) figures. Much of the decline is believed to be due to the euro's rise in value, which has reduced the euro value of exports from Irish firms trading in other currencies such as the US dollar and sterling.
The figures indicate that export trends are worsening as the year goes on, with the March figure of Eur 6,300 million coming in €530 million lower than February, after adjustment for seasonal trends. But the CSO has not indicated how much of the export fall is due to price changes and how much to a decline in actual export volume.
The poor international environment is hitting Irish growth prospects and, in an interview with Reuters news agency, Mr McCreevy indicated that budgetary growth forecasts would be cut. "At this particular stage, you can make a reasonable guess and say that our projections will be on the downside," he said.
The Budget forecast was for gross national product growth of 2.2 per cent and gross domestic product growth of 3.5 per cent. The extent of the likely revision will become clear when the Department publishes its updated predictions over the summer. Mr McCreevy said that while this might hit tax revenues, he would remain within his Budget borrowing targets.
Despite the impact of the rising euro on export values, Mr McCreevy said the currency's current level was bearable for Irish exporters, but he said the speed of the euro's ascent was causing problems. He said the euro at Eur 1.17 in the first few months of its birth had not seemed to create problems for the world economy.
"So, therefore, the rate it's at now can be liveable, but it's the speed at which it has gone up that is causing difficulties," Mr McCreevy said. The euro hit a record high of over $1.19 this week, and late yesterday it was quoted at Eur 1.1888. Mr McCreevy said that as an exporting nation, Ireland had enjoyed a competitive exchange rate while the euro remained relatively weak.
"But now it's at a level which I suggest is probably more realistic, or the level at which we thought it would stay when we joined [the euro]," he said. It could cause problems for firms with "bloated costs", Mr McCreevy added.
The latest figures also show that the declining trend in imports is continuing, with the total in the first three months down about 22 per cent on the same period last year.
Meanwhile, separate retail sales data published yesterday indicated a sluggish trend with the volume of sales up by 1.7 per cent in March compared with the same month last year. On a three- month basis, the figures show a volume decrease of 0.4 per cent in the January-March period, compared with the previous three months.
