AIB predicts 3.25% growth, warns on spending

The Irish economy will grow by 3.25 per cent in 2002, the lowest in a decade, predicts AIB. In it’s monthly market report the bank also warned that rapid growth in Government spending threatened a return to budget deficits.

The bank said the economy "appears set for a rebound, having achieved a soft landing in 2001."

It said: "The recent uptrend in unemployment, which has seen the Live Register climb by 20,000 in the past six months, should top out later this year."

The bank pointed to the continuing rapid growth in current government spending and rising inflationary pressures as cause for concern.

It said: "Both have the potential to inflict considerably more damage on the Irish economy than the global downturn did in 2001."

It forecast inflation would remain high in 2002, especially in the services sector. However there should be a downtrend in Consumer Price Index inflation over the course of the year, it said.

The report said that ex-mortgage CPI inflation should be over 4 per cent in the final quarter of 2002 while the headline CPI rate will average 4 per cent for the year as a whole and 4.7 per cent excluding mortgages.

According the report, the prospects of just a moderate recovery in activity means that the current market expectation of a 1 per cent rise in interest rates by the ECB in 2002 is misplaced. The bank predicted the ECB would leave the rates unchanged at 3.25 per cent.