IT WILL be at least 2011 before there is a “significant recovery” in Ireland’s economic fortunes, Prof John Fitzgerald of the Economic and Social Research Institute (ESRI) said yesterday.
However, a new report by stockbrokers Davy forecast a more positive picture, claiming that the economy would return to growth in the first three months of 2010.
In what is the most optimistic assessment of the economic outlook yet, Davy economist Rossa White said the sooner-than-expected improvement in the global economy was already boosting exports, while he forecast that consumer spending would bounce back after the biggest slump in decades.
The Davy report forecasts that Ireland will emerge from recession with growth of 0.5 per cent in Gross National Product (GNP) in 2010, with the economy growing by 4 per cent in 2011.
Most other forecasters are currently predicting a slight annual decline in the economy over the course of 2010, with quarterly growth only predicted to return in the second half of the year.
Paul Robinson, a currency strategist at Barclays Capital, said yesterday that the Irish economy would “take some time” to bounce back, because growth in its largest trading partner, the UK, was likely to remain “more muted than in the past”.
However, Mr Robinson added that sterling would strengthen slightly against the euro in the months ahead, which would help Irish exporters.
Although economists disagree about the timing of the Irish economic recovery, they are agreed that the turnaround here is likely to lag behind the rest of Europe and that the recovery, when it does happen, is likely to be driven by exports.
Speaking at the Small Firms Association’s annual conference, Prof Fitzgerald said the recovery was also contingent on the Irish economy reducing its cost base.
“We need to ask ourselves if we can price ourselves back into the market rapidly . . . If we do we will see a very robust recovery by 2012, unemployment will come down gradually from 2011 onwards, and we might get back to full employment by 2015.”
He questioned whether costs had actually come down in the private sector. “In our modelling we felt that wage rates, for example, would fall by 7 per cent over two years in the private sector. However, the latest data suggests that, in spite of what people are saying, costs are not coming down significantly. They are still rising, according to CSO data.”
He said there had been a 7 per cent wage cut in the public sector, and many of his European colleagues were “staggered” this had been accepted by Irish public sector workers.
“In terms of where we go from here, it will be important that it is seen that here is some reaction from the private sector and so far the data suggests that there has been no significant cuts in labour costs or wage rates in the private sector . . . Until we see the data from the CSO, there cannot really be further cuts in the public sector.”
His claims were refuted by a representative of employers’ group Ibec, who said payroll costs had fallen by 12 or 13 per cent in the private sector, although this was not attributable solely to reductions in pay.
“Pay reductions account for around 2 per cent of falling costs, but we’re seeing it in reduced bonuses, reduced working time and unemployment increase,” he said.
Although Davy expects the economy to start growing again in the new year, Mr White warned that it would not “feel” like conditions were improving that quickly, as unemployment would not peak until the third quarter of 2010.
Rates of precautionary saving – where consumers hoard their disposable income in fear of future tax hikes, pay cuts or job losses – are likely to ease next year, he said.
“I don’t think December’s tax increases [in the Budget] will do any damage to consumer spending, because people have already factored them in.”
Mr White said Davy’s bullish forecasts on the economy were based on a Yes vote in Friday’s Lisbon referendum.