Irish recovery to lag rest of world - Goodbody

Any recovery in the Irish economy will be slower than in other countries and is unlikely to become evident before 2011, according to a report from Goodbody Stockbrokers.

In its latest economic forecast Goodbody’s says the Irish economy will contract by 8.7 per cent this year followed by a further 4.6 per cent drop next year. However, it expects growth of 1 per cent in 2011.

According to Goodbody economist Dermot O'Leary, the Irish economy that emerges from the recession will be very different to that which entered it and he expects exports to account for an increasing share of economic output.

Although he believes growth will resume in 2011 this is also the year in which unemployment is expected to peak at 17.5 per cent, and Mr O'Leary pointed to the consequence of this level of job losses in Finland.

“Worryingly, when employment fell by this extent in Finland in the early 1990s, it took 18 years for it to return to its pre-recession level,” he said.

Inflation is expected to fall by 4 per cent this year and Mr O’Leary said the process of engineering a real devaluation was underway with wages falling by between 7 and 8 per cent this year.

The Government’s prediction of a budget deficit of 3 per cent of GDP by 2013 remained dependent on more spending cuts and tax rises coupled with a return to growth.

The economist also expects a 4 per cent fall in consumer prices this year and said the extent of retrenchment by Irish consumers had been dramatic, noting that retail sales were down 22 per cent by volume in the first quarter.

On the public finances, his report said that while the April Budget 'started the ball rolling' in addressing the problem, but the process would take a number of years to complete.

A lack of detail on the Government’s National Asset Management Agency (Nama), particularly in relation to the pricing of the assets to be transferred across “is creating both uncertainty as to the overall cost to the State and a lending standstill in the development sector”.

He said it was important the lack of credit be addressed quickly as the drying up of bank lending “continues to impinge on the economy”.