Central Bank cuts forecasts

The Central Bank has cut its forecasts for economic growth in 2010 and expects volume of gross domestic product (GDP) to increase by only 0.2 per cent.

This is lower than the 0.8 per cent predicted by the Central Bank in its quarterly bulletin in July.

The bank also lowered its forecasts for 2011, with GDP predicted to grow by 2.4 per cent for the year, compared to previous forecasts of 2.8 per cent.

Gross national product (GNP), which excludes the repatriated profits of multinational firms, is forecast to fall by 1.7 per cent in 2010.

The Central Bank said the difference between the two figures was down to the strength of the export sector, and although domestic spending was weak, there was evidence that consumer spending was starting to stabilise.

"Encouragingly, the latest trade data indicate that the export recovery has become somewhat more broadly based and now encompasses some more ‘traditional’ segments of the manufacturing sector," it said.

"The continuing weakness of investment, however, remains a considerable drag on growth."

The report said the euro-area economy's recovery will remain "moderate and uneven", although the wider global economy is expected to remain "supportive".

The bank also warned that savings necessary in this year’s budget would be larger than the previously predicted €3 billion.

“Against the background of sharply increased concerns about fiscal sustainability, the main priority in the short-term is to ensure that the 2011 budget credibly demonstrates the first step of a reprogrammed tighter fiscal plan aimed at getting back on to a convergent path,” it said.

“This will necessarily mean a larger adjustment than the €3 billion foreseen until recently.”

The Central Bank last week unveiled the final cost for the bank bailout, which could rise to €50 billion. Despite this, the Minister for Finance Brian Lenihan reiterated the Government's commitment to cutting the deficit to 3 per cent by 2014. He signalled deeper cuts would be needed to achieve this goal, with the Government set to publish a four-year budgetary framework.