The Irish economy is stabilising, Minister for Finance Brian Lenihan said today, as new data from the Economic and Social Research Institute (ESRI) predicted “modest” growth in the economy in 2011.
However, the think-tank's Quarterly Economic Commentary (QEC) said the number of people employed will remain static, while wages will continue to fall.
In 2011, the ESRI predicts GNP will grow by 2.75 per cent and GDP by 2.5 per cent, with the recovery led by a surge in exports.
Speaking on RTÉ's News At One today, Mr Lenihan said confidence was returning to the country.
"It means that we are stabilising as an economy and it also means we are turning the corner, and there will be increased numbers of jobs created," he said. "At least we're on an upward trajectory."
The Minister said the ESRI's predictions for the year were "more optimistic" than his own department's, although they were slightly more subdued for prospects in 2011. Ireland's competitiveness was key to recovery, he said.
"One great difficulty is the fact that the construction industry has taken a terrible bang and recovery will be very, very slow there. Traditionally, it's a labour intensive industry, and that has been our big difficulty. But the retail, and tourist and consumer sides can turn and generate more employment, foreign direct remains very important, and above all our indigenous sector is so important," he said.
However, jobs will not grow between 2010 and 2011, the ESRI report said. The rate of unemployment will ease slightly from an average of 13.75 per cent this year to 13 per cent next year, partly as a result of predicted net emigration of 60,000 in the year to this April and a further 40,000 in the year to April 2011.
The ESRI said there would be further job losses, particularly in the financial sector and the public sector.
The ESRI's commentary echoes a report by the Central Bank last week, which also predicted unemployment would stay at 13 per cent next year.
This morning, Fine Gael called for a jobs strategy to help boost the economy.
"Having lost 250,000 jobs the best this we can look for is stability with 100,000 people emigrating. I think it calls for the Government to have a much different strategy and there has to be innovation in that strategy," the party's finance spokesman Richard Bruton told RTÉ's Morning Ireland.
He said investment was needed in infrastructure, including electricity, broadband and the water system. "We need to do that not only for the jobs benefit immediately but to create a platform for strong economic recovery in the longer term," he said. "If we start an aggressive strategy clearly we can create unemployment."
Mr Bruton said it also required a competitiveness pact, and credit needed to start flowing. "Good business projects are being starved of credit and are going to the wall," he said.
In its latest commentary, the ESRI also states the cost of bailing out Anglo Irish Bank and Irish Nationwide Building Society (INBS) is "manageable" for the economy, but it adds taxpayers should never have been faced with such a financial burden "due to the behaviour of the private sector".
The ESRI gives a "tentative estimate" that the Government will have to pour at least €73 billion into fixing the banking system, a figure that equates to 47 per cent of 2010's gross domestic product (GDP). This includes a €40 billion investment in the National Asset Management Agency (Nama).
However, it identifies a net cost to the State of €25 billion in relation to the bailout of Anglo Irish Bank and INBS. It does not expect the State to recover this sum.
"The potential for getting a return there is very limited," said Alan Barrett, one of the authors of the ESRI's report. This net cost of €25 billion equates to 15 per cent of GDP.
"This is manageable and is not going to threaten the solvency of the State," Prof Barrett said. "Even though the burden is manageable, it should never have arisen in the first place . . . If Anglo is of systemic importance, it should always have been regulated as such."
Speaking this morning, Mr Bruton said €15 billion could be saved by winding Anglo up. "The onus of proof is on those who believe we should bail out Anglo and keep going," Mr Bruton said. "We need to take a hard look at this and do proper due diligence on the options available here. I think everyone now recognises Anglo is of no importance to the economy going forward. It'll never lend a red cent to any business that has a prospect of growing and that's the problem."
Despite the burden on taxpayers as a result of the collapse of Anglo Irish Bank and INBS, Prof Barrett said it was important to remember the deficit was largely caused by the gap between tax revenues and Government spending.
By the end of 2010, nominal rates of income per head of population will have fallen below 2003 levels. Although some of the data is not yet available, it estimates that average earnings fell 2 per cent in 2009 and expects a fall of 3 per cent this year.
There will be "another tough budget to come", as the Government seeks to bridge the deficit, said co-author Jean Goggin. Tax revenues "continue to disappoint" in 2010, she said. However, the pace of decline in returns from most tax categories has slowed, with the "notable exception" of income tax.
Despite these difficulties, the ESRI forecasts the economy will stabilise this year, with GDP falling by just 0.5 per cent and gross national product (GNP), which excludes profits made by multinationals based in Ireland, coming in flat.
The prospect of widespread industrial action in the public sector posed a risk to Ireland's "reputational credit" in international lending markets and has the potential to increase Government borrowing costs, it said.
The ESRI's 2011 forecasts are based on the assumption that the Government will implement its planned budgetary savings of €3 billion.
Sinn Féin's economy spokesman Arthur Morgan today criticised Government policy. "The Government will not implement a €3.2 billion economic stimulus package to get Ireland back to work and to stop the over-reliance on emigration as a solution to unemployment, but they are willing to pour €80 billion of taxpayer's money into fixing the banking system," he said.
Meanwhile, Nama chief executive Brendan McDonagh and the chief executive of the National Treasury Management Agency, John Corrigan, are appearing before the Oireachtas Joint Committee on Finance and Public Service today.