Further cutbacks are necessary if stable economic growth and moderate inflation are to be restored, the governor of the Central Bank said today.
Speaking at the publication of the bank’s annual report today, John Hurley welcomed the Government’s move to rein in public spending but insisted further action would be needed to tackle the slowdown.
Mr Hurley, who is also a governing council member of the European Central Bank, said the “sharper than expected” housing slowdown and weak consumer spending meant the Irish economy would struggle to grow this year.
“While the emergence of a slowdown in the economy was not unanticipated, the loss of momentum has been greater than expected this year,” he said.
Gross domestic product will increase “significantly less” than 1 per cent, he forecast.
Publishing the bank’s report for 2007, Mr Hurley said “growth prospects for the next 18 months or so are now significantly less favourable” But he added that both GNP and GDP growth were expected to remain positive this year.
The central bank's forecast for expansion this year compares with the Economic and Social Research Institute's prediction that the economy will contract for the first time in 25 years.
GDP shank in the first quarter as building contracted and consumer spending growth slowed.
The bank will publish new forecasts later this month, having predicted expansion of 2.4 per cent in April.
The slowdown has already pushed unemployment to the highest in almost a decade and dragged consumer confidence to a record low.
“Notwithstanding the challenging short-term outlook, we continue to believe that the medium-term outlook is favourable and that growth should gradually recover,” Mr Hurley said.
“However, such an outcome is not guaranteed and will require concerted action.”
Additional reporting by Bloomberg