Prospects for the domestic economy have improved in recent months, according to a new report by the Central Bank.
However, the effect on overall economic growth will be cancelled out by weaker than anticipated export, according to the bank’s Quarterly Economic Bulletin.
Despite the anticipated shift in the sources of economic growth towards the domestic economy and two consecutive quarters of employment growth, the bank’s economists have not revised their labour market forecasts. They continue to believe that employment will expand by 0.3 per cent compared to 2012. If this happens it will be the first time in half a decade that employment has risen on an annual basis.
The Central Bank said growth in gross domestic product in 2013 would be 1.2 per cent, down 0.1 per cent from previous predictions. GDP grew by 0.9 per cent in 2012. For 2014, the forecast is unchanged at 2.5 per cent.
By contrast, the bank has revised up its forecast for the narrower measure of economic activity, gross national product, in both 2013 and 2014.
GNP is expected to grow by 0.6 per cent this year, 0.1 percentage points higher than its last forecast three months ago. In 2014, GNP is forecast to expand by 1.6 per cent, 0.3 per centage points higher than previously expected.
The report said growth in Ireland’s trading partners was expected to slow more than previously thought, leading to a slowdown in demand for exports.
“The performance of Irish exports has proved quite resilient to a significant slowdown in external demand over the last year reflecting the benefits of an improvement in competitiveness and a strong performance from services exports,” the report said. “Nevertheless, the progressive deterioration in the outlook for demand in Ireland’s main trading partners has necessitated a corresponding downgrade in projected export growth.”
The bank’s economists noted the increasingly marked difference in performance between exports of goods and exports of services, with the latter continuing to grow and the former stagnating.
Total exports are forecast to pick up in 2014 on the back of a rise in demand in major markets from the second half of 2013.
It said Ireland is still meeting its EU-IMF programme targets, but the bank yet again criticised slow progress by banks in dealing with non-performing loans, saying it prolonged the uncertainty over asset quality in the financial system.
At a briefing today, Central Bank chief economist Lars Frissel said further recapitalisation of the banks could not be ruled out, but how any such move would be funded, if required, was “an open question”.
