Global upturn to support recovery

The global upturn will help support Ireland's economic recovery with export growth providing the main stimulus.

Bank of Ireland's Quarterly Economic Outlook says the Irish economy is stabilising with GDP falling 0.3 per cent in the six months to September, compared to a 7.5 per cent drop in the previous six months.

It expects growth of 1 per cent compared with other analysts' estimates of a -1 per cent contraction. The bank's more optomistic forecast is based on its expecation of slightly stronger exports, it said.

"One could state that the recession ended in the second quarter of 2009 although this growth was due to a sharp fall in imports relative to exports, following a further decline in domestic spending," said Bank of Ireland's chief economist Dan McLaughlin.

"The volume of exports is anticipated to pick up as 2010 unfolds and we have pencilled in a 3.5 per cent rise for the year as a whole. In contrast, imports are expected to fall again albeit by a less dramatic 2 per cent, with the result that the external sector again provides the main support for the economy."

Domestic demand is expected to fall again and inflation is expected to return to positive territory before the end of 2010.

The Irish average inflation rate last year according to the HICP measure was -1.7 per cent, substantially below the euro average of 0.3 per cent. The main differences were seen in the food, clothing and footwear and housing sectors, and reflected in part the effect of the sterling/euro exchange rate.

Job losses in the economy are expected to continue, the report said, predicting a 65,000 decline on average over the year. This 3.5 per cent fall compares with an average drop of 8 per cent in 2009.

"This is likely to precipitate a further substantial fall in the labour supply, however, with the result that the unemployment rate is forecast to average 12.9 per cent, implying only a modest rise from the final quarter of 2009," Mr McLaughlin said.

Unemployment was an estimated 12.5 per cent in December.