Central Bank revises up forecast

The Central Bank has revised up its gross domestic product (GDP) forecast for 2011, predicting the Irish economy will now grow by 1 per cent.

This is up slightly on its July quarterly bulletin, when it said GDP would increase by 0.8 per cent this year.

However, the bank predicted that gross national product (GNP), which excludes repatriated profits of multinational firms, will now decline at a sharper rate of -0.4 per cent in 2011, instead of the previously forecast -0.3 per cent.

The bank, which published its third quarterly bulletin today, also downgraded its predictions for GDP and GNP next year.

It now expects GDP to grow by 1.8 per cent in 2012 instead of the 2.1 per cent forecast in July, and GNP to expand by 0.7 per cent instead of 1 per cent.

The revised figures, it said, represented “more modest rates of expansion than previously anticipated”.

The bank said the external environment continued to be characterised by turbulent conditions on financial markets and signs of slower growth in many of the country’s main trading partners.

Welcoming the revised figures, Minister for Finance Michael Noonan said he had expected the forecast for 2012 to be worse.

"I was very pleased that they marked growth up for 2011 and that the reduction for 2012 was only a quarter of one per cent," he told reporters as he left an EU meeting in Luxembourg.

"I was expecting with the decline in the economies of our customer countries to which we export that there'd be a more significant markdown.

"But, of course, the Department of Finance will have to form their own independent opinion through their own forecasting unit as to where we pitch the estimate for next year and that will be a crucial factor in the
preparation for the Budget," he added.

In its bulletin, the Central Bank said the recent reduction in Irish bond yields, which has seen Irish borrowing costs drop to pre-bailout levels, were a sign of “increased confidence in the Irish economy”.

The bank said the positive shift in bond yields reflected a number of factors including definite signs of stabilisation in the Irish economy, lower bank recapitalisation costs and lower financing costs under the country’s EU-IMF bailout programme.

In terms of the public finances, the Central Bank said the fiscal adjustment, agreed under the bailout package, remained on track.

The precise level of the adjustment required to reach the deficit-to-GDP ratio target of 8.6 per cent would, however, depend on growth projections at the time of the budget.

“It is difficult to say at this stage whether this will be the €3.6 billion adjustment currently projected under the EU-IMF Programme, or whether a larger adjustment will be needed to achieve this target,” it said.

The bank said there were a number of arguments in favour of exceeding the deficit ratio target by bringing forward some of the adjustments planned for future years.

“Aiming to exceed the target will incorporate a degree of resilience into the public finances to cater for the possibility of negative shocks to the economy,” it said.

The move to fast-track some of the adjustments did not represent an increase in the scale of the overall adjustment but rather an increase in its speed.