Ireland’s unemployment will rise to 4.5 per cent and GDP will fall to 3 per cent next year according forecasts from the International Monetary Fund published today.
In a gloomy report on the world’s economic prospects for 2002, the IMF said the economic downturn may be more prolonged than currently envisaged by many economists.
The IMF points out that the downturn is of a much wider global spread than any other in at least twenty years with none of the major economic blocs - the US, Japan and the EU - providing impetus for a recovery.
The IMF added it believes financial markets have not fully priced in the adverse effects of the September 11th attacks.
In the US recovery may be more severely hampered by past mistakes, including over-investment, particularly in the IT sector, and consumers’ relatively high in-debtedness.
The imbalances in the global economy including the large US current account an expensive dollar and overvalued equity markets remain an important source of risk, the IMF said.
On a more positive note, the IMF said the euro zone is less vulnerable than the US to adverse shocks to confidence and activity. External balances are stronger; households are less indebted and less exposed to stock market developments; and concerns about over-investment and over-capacity among firms appear to be lower.
The IMF concluded that for a robust recovery, it is critical the euro zone carry out more aggressive structural reforms in labour, product and financial markets and other areas that have been holding down Europe’s potential growth rate and contributing, at least indirectly, to broader imbalances in the global economy.