The current downturn in the Irish economy will continue into next year with economic growth unlikely to exceed 3 per cent in 2001, a leading economist said today.
Speaking at the launch of "
Outlook for the Irish Economy 2002
", Friends First chief economist, Mr Jim Power said that as a small open economy, Ireland is in a particularly vulnerable situation.
Commenting on the prospects for an improved economic climate, Mr Power said that Ireland’s recovery is largely dependent on a V-shaped recovery in the US.
"A V-shaped recovery in the US cannot be taken for granted given the range of uncertainties that currently exist, in particular the ongoing war in Afghanistan and the possibility of further terrorist atrocities.
"The most likely scenario is that due to a combination of the massive fiscal and monetary stimuli already in the pipeline, and the approaching conclusion of the inventory adjustment cycle, the US economy should start to recover in the second half of 2002, but the recovery is likely to be more modest than the current proponents of the V-shaped recovery believe," he warned.
Commenting on the short-term effects of the slowdown on the Irish economy, Mr Power said further job losses are inevitable. To date it is estimated that around 6,500 workers have lost their jobs in the IT sector but the process is not yet completed.
Mr Power said that some indigenous employers are now using the opportunity of the slowdown to shed excess labour. As demand conditions weaken further, job losses are likely to increase.
"The unemployment rate could well rise to 5.5 per cent by the end of 2002," he added.