Broker not optimistic on Government's deficit-cutting estimates
Published 11/12/2012 | 05:00
Davy Stockbrokers says weak export growth next year combined with a domestic economy still in the doldrums will make it difficult for the Government to meet the targets for deficit reduction set in last week's Budget.
However, the Dublin stockbroker is predicting relief in the form of a breakthrough in negotiates to spread out the €3.1bn-a-year cost of bailing out Anglo Irish Bank.
The forecasts are included in Davy's outlook for the year ahead, published yesterday.
Davy expects growth of just 0.9pc in the Irish economy next year, lower than the government and IMF predictions. Exports will be harder to achieve as Europe's economy continues to lag behind the US.
"Ireland's debt sustainability metrics remain challenging as the deficit reduction plan rests on the economy achieving 5pc nominal growth by 2015. Davy believes that Ireland will recover to 3pc GDP growth by 2015," chief economist Conall Mac Coille said.
Set against that, however, is the prediction that a deal can be done with the European Central Bank (ECB) on the vexed question of Anglo, according to Davy's Donal O'Mahony.
That will, most likely, involve the Government issuing new sovereign debt to replace the 'Prom Note', he said.
Private-sector jobs have stabilised, with the rise in unemployment since the start of 2011 driven almost entirely by public-sector job cuts, according to Conall Mac Coille.
Public-sector job cuts are close to complete, he noted, with around 7,000 more targeted to go.
Household debt will return to 2004 levels by 2014 as loans are repaid and new borrowing remains constrained, Mac Coille said. House prices have declined close to 60pc since the peak.
In its stock picks for the year, Davy has highlighted Penneys owner ABF, C&C, Israel's Frutarom, Greencore, DCC, Deutsche Post DHL, William Hill and Smurfit Kappa Group. These companies have a number of key elements in common, including strong balance sheets.