Is Ireland's Economic Outlook Credible?

Is the Irish Government’s economic outlook for the period to 2015 credible given the Central Bank’s most recent forecast on economic growth? Social Justice Ireland has serious doubts in this regard.

The Government’s Economic Outlook for Ireland was published in Budget 2012. The key table is reproduced below. It forecasts low growth in 2012 but the Central Bank has now lowered these forecasts dramatically.

The latest official predictions from the Central Bank say gross domestic product (GDP) will rise by 0.5 per cent this year, and 2.1 per cent in 2013. That compares with previous forecasts of 1.8 per cent growth that the bank made in October, and 2.1 per cent in July last year.

Gross national product (GNP), a narrower measure of economic activity which excludes multinational firms, will fall by 0.7 per cent this year according to the Central Bank, and will rise by only 1 per cent in 2013. That reverses last quarter's expectations that GNP would rise by 0.7 per cent for 2012.

Other major analysts of the Irish situation predict the domestic economy will return to recession in 2012. 

Social Justice Ireland again draws attention to the fact that the growth in these forecasts is based totally on exports. All components of domestic demand are forecast to fall in 2012 according to Government: Consumer spending by 1.3%; Government expenditure by 2.2% and investment by 1%.

So Government’s predicted growth of 1.3% in GDP (0.7% in GNP) is based totally on increasing exports by 3.6% in 2012. The Central Bank’s forecast now casts serious doubt on these modest forecasts. 

The economic pressures being faced by Ireland’s major trading partners does not auger well for its exports in the period immediately ahead. 

The Economic Outlook also shows that Government has accepted that employment and unemployment will fall again in 2012 which will only happen if there is an increase in emigration.

Ireland is facing a lengthy period of low-growth, high debt, increasing poverty, high unemployment and growing inequality.

At the same time the austerity drive to balance the nation’s books is creating a society with deep social injustices, not least for young people who have no sustainable jobs and no future in Ireland.

The Economic Outlook also shows that Government has accepted that employment and unemployment will fall again in 2012 which will only happen if there is an increase in emigration.

Ireland is facing a lengthy period of low-growth, high debt, increasing poverty, high unemployment and growing inequality.

At the same time the austerity drive to balance the nation’s books is creating a society with deep social injustices, not least for young people who have no sustainable jobs and no future in Ireland.

As noted above, the growth that underpins the Government’s current economic outlook is heavily dependent on growing exports.

In this context an IMF spokesperson speaking on December 20, 2011 stated that: "Looking ahead to 2012, there has been a substantial deterioration in the regional economic outlook, which represents a major external drag on Ireland's recovery and also poses downside risks. This calls for continued careful design and sound implementation of fiscal consolidation, financial sector reform and structural reforms to help sustain the nascent economic recovery." (cf. http://www.imf.org/external/np/tr/2011/tr122011.htm)

According to the troika and the Irish Government, reducing unemployment is a key priority. However, if unemployment is to fall, employment must grow. This, however, cannot happen unless domestic demand rises. This seems very unlikely to happen as the Eurozone, the UK and USA are all taking an austerity route towards resolving their problems. Ireland’s exports may rise in this scenario but at nowhere near the rate required to turn Ireland’s economy around.

It seems clear that Ireland needs some major adjustment to the terms of its current bailout agreement if it is to extricate itself from this situation.