UNEMPLOYMENT WILL average at 12 per cent in 2009, while exports will decline by a “dramatic” 6 per cent this year, according to the latest quarterly economic commentary by National Irish Bank (NIB).
The report, compiled by the bank’s chief economist Ronnie O’Toole, echoes recent forecasts that the economy is facing into a “very sharp” slowdown of 6 per cent of gross domestic product (GDP) this year and that the recession will extend into 2010.
“If the pace of deterioration of the Irish economy in the first three quarters of 2008 could have been characterised as surprising, the subsequent acceleration of the decline in Q4 and into Q1 of 2009 has been shocking,” Mr O’Toole said.
Consumer spending will contract by a further 4.5 per cent this year, compared to a decline of 0.5 per cent in Europe as a whole, he forecast.
The “negatives” for consumer spending – including a surge in unemployment, the income levy and next month’s emergency budget – will outweigh any measures that increase household purchasing power, such as cuts in interest rates, he said.
The predicted decline of 6 per cent in exports “while dramatic, will be modest relative to the declines being faced in other countries”, he said. Exports from the euro zone as a whole are likely to decline 10 per cent.
“On a positive note, Ireland’s continued ability to attract foreign direct investment, as shown in 2008, augurs well for its long-term prospects, though it will provide little short-term stimulus,” Mr O’Toole said.
A relatively fast move from inflation to deflation will help Ireland’s long-term competitiveness by making Irish exports cheaper in overseas markets, he added.
Based on the Harmonised Index of Consumer Prices (HICP) measure of inflation, which excludes mortgage interest rates and is the common standard of inflation across Europe, inflation in Ireland will be 1.5 percentage points lower than the European average this year.
Mr O’Toole forecast that the European Central Bank would deliver a final half-point interest rate cut in April, but would avoid taking its key lending rate below 1 per cent.
