MUCH WEAKER economic growth than previously anticipated in Europe will seriously affect the Irish economy’s performance next year, according to the Economic and Social Research Institute (ESRI).
Europe faces a repeat of the 1930s Great Depression if the crisis is not brought under control, Dr Joe Durkan, the report’s lead author said at a briefing yesterday.
Meanwhile, final drafts of budget and bailout documents leaked two weeks ago by sources in the German parliament were formally published yesterday. The documents are unchanged from the leaked versions, with the exception of some details related to the forthcoming budget.
In its latest Quarterly Economic Commentary, published this morning, the ESRI stresses the importance of a resolution of the euro area crisis for Irish economic recovery.
“As long as Europe remains in crisis, there is little prospect of Ireland returning to a path of sustainable, export-led growth,” the thinktank states.
Compared to its last assessment three months ago, the institute is now gloomier about next year’s economic prospects by almost every measure, including employment.
At the beginning of September the ESRI believed that the numbers at work in the economy would grow in 2012, the first increase in half a decade. Now it believes that a further net decline of 22,000 jobs will take place between this year and next. Of this, 15,000 will be accounted for by the already much-shrunken construction industry.
The unemployment rate will stand at 14.5 per cent on average over the course of the year, the report says, up from an average rate of joblessness of 14.2 per cent this year.
Ireland’s gross domestic product, the widest measure of economic activity, is expected to grow by less than 1 per cent next year. Just three months ago, the institute was predicting an expansion of more than double that rate, at 2.3 per cent.
The ESRI is even gloomier on gross national product, a narrower measure of activity which strips out the effect of multinationals’ profits. Following an increase in GNP in 2011 (the first such increase since 2007), the institute expects a contraction of 0.3 per cent next year.
The institute does not hold back in its criticisms of the policy response to the euro area crisis. The outcome of the latest emergency summit of EU leaders, which took place at the end of October, is “clearly” not adequate to address the problems, the report states.
“The present situation contains elements reminiscent of policy during the Great Depression, when a mounting crisis was confronted by an orthodoxy that resulted in great poverty that could have been avoided,” the report goes on to say.
The ESRI also expresses some disappointment at the Government’s Medium-Term Fiscal Statement published in early November.
Previously it had applauded the Coalition’s intention to set out tax and spending plans to 2015 so that households and businesses could plan accordingly. But the effect of the announcements three weeks ago on reducing uncertainty will be more limited than anticipated owing to “somewhat less detail than might have been expected”.
Despite the downward revision to its forecast for next year, the ESRI believes that the Government’s budgetary targets are “achievable”.
Under the terms of Ireland’s EU-IMF bailout, the Government is obliged to cut its deficit to 8.6 per cent of GDP. The ESRI expects an imbalance between spending and revenue of 8.3 per cent. This, however, is considerably larger than the figure it was forecasting three months ago.
In the bailout documents published yesterday, the reference in the leaked version to levying an annual €100 a year household charge on primary residences has been changed. No cash figure for the household charge was specified.
Reference in the leaked document to a “reform of capital gains taxation” did not appear in the final draft published yesterday. All targets of the amounts to be raised by new tax measures were also omitted.