IRELAND WILL return to growth next year but unemployment will remain a “significant problem” for up to a generation, an economic forecast has found.
Ernst & Young’s Summer Forecast 2010 predicts that unemployment will remain at 10 per cent for the next five years, while it will be more than a decade before the economy returns to the peak employment level achieved in 2007.
Describing the current economic crisis as “a recession of the youth”, the report states that the recession has been disproportionately severe on the young, with 23 per cent of the increase in unemployment in 2008 and 2009 experienced by the under 25s.
This is in contrast to previous recessions which have tended to impact older people more severely, a trend that may be due to the costs associated with redundancy, the ease in letting go temporary workers, and the increasing tendency to impose recruitment freezes. The latter is believed to disproportionately disadvantage new labour market entrants.
The report also expresses concern that the current surplus of construction labour will not be addressed, with the main source of job recovery expected to be in the high-end, professional services industry.
A central finding of the report is the prediction that Ireland’s prospects are more favourable than those of other indebted European countries such as Greece and Portugal, due to its “key economic advantages”, including an extremely strong and large export sector, falling price and wages, and “highly competitive” corporation tax rate.
The report sees a return to GDP growth of 2.9 per cent next year after a 1 per cent contraction in 2010. However, the report warns that economic recovery is contingent on international events and that “significant risks” remain, most notably the possibility of contagion from the Green debt crisis.
While expressing confidence about Ireland’s future economic prospects, Neil Gibson, the main adviser for the report, said a “two-tier” economy could emerge over the coming years, as the domestic and export-driven economy diverge.
Noting that economic growth would be driven by export activity rather than consumer spending at home, he said that it may feel like a “jobless recovery”.
“While GDP will rise, it’s not going to feel like that to consumers or businesses. While a recovery in exports will be good for tax receipts, it will not necessarily be felt in villages and streets in Ireland.”
The report also expressed concern about the disappointing performance of Ireland’s export sector in the second half of last year.
Although driven by a fall in the export earnings of one particular commodity – organic chemicals – the report warns that a slower-than-forecast export recovery in any sector over the next year could pose significant risks to the economy.
Yesterday’s report – which was an all-island study – found that Northern Ireland’s economic recovery will lag behind that of Britain and the Republic, mainly due to the impact of public sector spending cuts.
“In the medium term, we are predicting cuts of between £750 million and £1 billion for Northern Ireland,” Mr Gibson said.
