The outlook for the Irish economy is now less gloomy as a result of a pick-up in international trade, according to the latest economic update from Ulster Bank.
The bank said “early signs of gradual recovery” in the economies of Ireland’s main trading partners as well as the “surprising resilience” of Irish exports to date meant it had become “somewhat less pessimistic” on the growth outlook for Ireland.
Ulster Bank economist Simon Barry said he now expected the economy to contract by 3.2 per cent in 2010 in terms of its gross national product (GNP).
Its previous forecast was a decline of 3.5 per cent. However, its forecast for GNP in 2009 remains unchanged, with a predicted decline of 8.9 per cent.
Ireland’s economic fortunes will improve later in 2010, despite an overall contraction for the year as a whole, the bank said.
The improved outlook for the euro zone, the UK and the US are “critical” to the Irish economy, as domestic demand remains under significant pressure.
Although Ulster Bank said it was “less downbeat” than it had been previously on consumption, it still expects a 7.5 per cent decline in consumption in 2009 and a 3 per cent fall next year. Unemployment is likely to continue to rise, peaking next year at 15.4 per cent.
These forecasts are broadly in line with those of other economists and forecasting bodies.
House prices will be dragged down further, Ulster Bank said.
“Notwithstanding the major improvement in affordability due to lower prices and interest rates, excess supply and subdued demand will put further downward pressure on house prices and we anticipate a total cumulative decline in prices from their early 2007 peak of around 45 per cent.”
Some 35 per cent of this correction has already taken place, Mr Barry said.
Meanwhile, the state of the public finances points to a €1 billion shortfall in tax revenues for the full year, while there is a “strong likelihood” that the 10.75 per cent general government deficit target will be missed, Ulster Bank said, concluding that the December Budget was “shaping up to be unavoidably tough”.
