Ireland's economy is sharply decelerating and a new phase of lower growth must be matched by lower expectations about wage rises and tax cuts in next month's budget, according to the Economic and Social Research Institute (ESRI).
In its autumn quarterly bulletin published today, the ESRI said it expects the Irish economy to grow below its trend growth rate of 5 per cent next year for the first time in eight years.
"The reality of the Irish economy entering a new phase of lower growth must be matched by revised expectations about wage growth and the potency of budget policy," the ESRI said.
Given the momentum from the record growth rates of last year, economic growth in 2001 is expected to be 6.4 per cent in real GDP and 4.9 per cent in real GNP terms.
But a quarter-by-quarter breakdown of the growth figures shows the extent of the downturn. The economy grew at 11.6 per cent at the start of the year to 0.5 per cent in the past three months.
The ESRI said the prospects for 2002 are much more uncertain, given the extent of the international downturn.
On the basis of the US and European economies recovering in the second half of next year, the ESRI’s forecast in 2002 for real GDP and real GNP is 3.4 per cent and 2.6 per cent, respectively.
The ESRI forecasts unemployment will rise to 4.2 per cent early in 2002. It reached a record low of 3.7 per cent this year.
The ESRI said although the public finances remain sound, they can be expected to deteriorate next year in line with slower growth.
AFP