Goodbody expects recession to end in second half of year

THE IRISH economy is heading in the right direction and will emerge from recession in the second half of the year, a new report said yesterday.

Goodbody Stockbrokers said it expects the recovery to be led by exports and said it was revising its forecasts for gross domestic product (GDP) growth to 2.8 per cent in 2011 from previous estimates of 2.4 per cent.

“Although economic activity on the ground is still quite weak, we are encouraged by the degree of progress that has been made in relation to the policies that will eventually lead to a recovery in the economy, and we now have a clearer idea of the overall cost of the banking crisis, which should bring some more certainty back into the system,” said Goodbody’s chief economist Dermot O’Leary.

Economic growth will remain negative this year, contracting 1 per cent in 2010, and a recovery in domestic demand will not become evident until next year.

However, recent banking announcements were a positive move for Ireland, the report said, despite a possible cost to the State of €33 billion, which is about 20 per cent of GDP. AIB yesterday completed the transfer of its first tranche of loans to the National Asset Management Agency with a nominal value of €3.3 billion.

The banks have also been instructed to raise capital to meet new standards designed to protect solvency. AIB must raise €7.4 billion additional capital by the end of the year. Bank of Ireland needs €2.66 billion in equity capital. Goodbody said the increased requirements would ensure a more stable banking system and credit availability.

“It is clear from last week’s announcements that the Government is intent in drawing a line in the sand in relation to the Irish banking system,” it said.

“However, that is not to diminish the enormous overall cost of the crisis and is significantly more than Goodbody previously estimated and well ahead of an ‘average’ banking crisis in developed economies over the past 40 years of 11 per cent of GDP.”

The report also suggested that the Greater Dublin Area would see a recovery in property prices first, with an overall price drop of 50 per cent expected. Prices have already been adjusted by about 40 per cent in the region.