Ulster Bank and National Irish Bank (NIB) have both published grim economic forecasts as the economic outlook continues to be dragged down by growing unemployment, reduced consumer spending and falling house prices.
Ulster Bank has revised its economic forecasts downwards, and now predicts a decline in gross domestic product (GDP) of 0.7 per cent for 2008, and a marginal increase of 0.9 per cent for 2009.
"This reflects a paring back across most activity components, rather than a sharp reduction in any particular item,'" said Ulster Bank chief economist, Pat McArdle, but he did urge that people, "don't lose sight of the fact that 2008 is not 1983 - the key economic fundamentals are sound in comparison, and will return to more sustainable levels of growth once the housing adjustment has taken place".
Slightly more optimistic than Mr McArdle is Dr Ronnie O'Toole, chief economist with NIB. He said that Ireland has "technically avoided a recession" to date, and he expects the Irish economy to grow by 1 per cent over the coming year, with GDP growth of 3 per cent forecast for 2009.
He blames the slowdown in consumer spending as being behind the deteriorating outlook for the economy.
"Consumers are on strike," he said, "Consumer confidence evaporated in March, with a sharp reduction in spending evident since then…. Consumers have been squeezed by higher prices, with the full impact of rising energy, food and housing costs severely testing their resilience".
Ulster Bank has become slightly more optimistic on the housing market, and has revised its 2008 housing completions forecast to 44,000, from 42,500, reflecting "stronger-than-expected activity in the first five months of the year". However, it remains bearish on the outlook for 2009, and has lowered its forecast to 30,000 completions.
"Whereas before we had forecast house prices to level off in the second half of 2008, we now expect further falls in coming months, leaving house prices down 9 per cent by the year-end, and down 15 per cent from the peak," said Mr McArdle.
Mr McArdle predicts that employment growth will remain positive at 0.6 per cent this year, but that unemployment will rise to 5.6 per cent by the end of this year, and to 7.2 per cent in 2009. Dr O'Toole said that long-term unemployment will rise from its current level of 28,000 to 45,000 and won't fall back again until 2011 or 2012.
Both banks see exports as being key to recovery and believe that they will be the strongest aspect of the Irish economy in 2008.
Although manufacturing exports are suffering from a weak sterling and financial services exports are facing a challenging time due to the international credit crunch, it is expected that increased pharmaceutical and business services will offset such falls.
Ulster Bank expects exports to grow by 3.5 per cent over the coming year, although it sees a fall-off to 3.3 per cent in 2009, while NIB is forecasting higher growth, of 4.5 per cent in 2008 and 5.0 per cent in 2009.
On the upside, it is "business as usual" for foreign direct investment (FDI), said Dr O'Toole, as FDI levels are largely in line with last year. "However the difference is that the type of project now coming into Ireland tends to offer good quality jobs, rather than huge numbers of jobs," he added.
