The Government downgraded its outlook for economic recovery last night with fewer jobs expected to materialise and the national debt anticipated to rise further.
The new 2011 projections for gross domestic product (GDP) have been cut by more than half. In December, the Department of Finance believed GDP would increase by 1.8 per cent this year. Now it foresees an expansion of only 0.8 per cent.
Separately, higher inflation in the euro zone in April made another interest rate increase more likely by the summer, while other figures released yesterday show the banking system weakening further in March.
The Government has become more pessimistic in its outlook for the economy’s performance over the next half decade. The current period was characterised by the Department of Finance as a “relatively jobless recovery”, with the domestic economy expected to remain in recession this year and next.
The export sector will continue to be the only source of growth, according to the new figures.
Employment is expected to fall by a further 30,000 this year with a jobs turnaround predicted next year. In the four years from 2012, the Government expects the number at work to increase by 100,000.
As more than 300,000 jobs have disappeared in the recession, this will not be enough to end high unemployment, the figures show. From the current rate of 15 per cent, joblessness will decline only very gradually to mid-decade say the forecasts. In 2015 the projections see unemployment at 10 per cent.
The forecasts are contained in the Stability Programme Update, a document all EU member states are obliged to produced twice a year. The forecasts are considerably more downbeat than the assumptions upon which budget 2011 was based in December 2010.
The growth forecast and projections for employment and public debt are more closely in line with the forecasts of the European Commission and the International Monetary Fund, both of which oversee Ireland’s bailout.
Although the GDP growth forecast for next year was also lowered, it remains the most upbeat of any forecaster. The size of the national debt in the coming years is also now expected to be worse than previously thought. It has been revised upwards, owing to the larger than anticipated costs of bailing out the banks and lower economic growth.
In December the public debt was expected to peak at 103 per cent of GDP. The new projection is for a high point of 118 per cent to be reached in 2013.
Also released yesterday were April inflation figures for the euro zone. At 2.8 per cent, the annual inflation rate moved further above the European Central Bank’s target of 2 per cent.
This increases the probability of another rise in mortgage interest rates in the months ahead.
A quarter-point rise in the ECB rate would add €32 a month to a typical €250,000 tracker mortgage being repaid over 30 years, exerting further pressures on borrowers and the beleaguered Irish economy alike.
Meanwhile, figures published by the Central Bank showed that deposits in all banks in Ireland declined by a further €16 billion in March compared to a month earlier.
Household deposits fell by just €438 million, the smallest decline since December. In total, they stood at just below €93 billion in March.
Total deposits, which include those of households, businesses, and financial institutions, stood at €630 billion. This is almost one-third down on August, immediately prior to the most recent bout of jitters about the banking system.
Most of the withdrawals have been accounted for by foreigners pulling their cash out of banks here.