Dire economic outlook as exports fail to lift gloom
Bloxham Stockbrokers' report warns urgent action needed to kickstart consumer spending
BLOXHAM Stockbrokers paints a dire picture in its quarterly economic outlook for Ireland, saying exports are not enough to lift the domestic economy.
The report, published last night, said growth in 2011 would be lower than previously forecast while the pace of inflation was set to increase.
Bloxham's chief economist Alan McQuaid said the economy would return to growth in 2011, but by just 1pc.
While better than the contraction recorded in 2010, it is still well below Mr McQuaid's previous estimate of 1.4pc growth.
The ongoing banking crisis means that even though exports are doing well, the bigger domestic economy shows no signs of coming out of its slump.
Mr McQuaid said a "reverse SSIA" scheme was needed to kickstart consumer spending and end the savings surge that is killing the retail and service sectors.
Even government incentives to get consumers spending are unlikely to put money into tills as long as unemployment is at the highest level since 1994, Bloxham concedes. It does not expect the live register number to fall until late 2011 at least.
As ever, the export sector offers the one ray of light in a fairly gloomy economic picture. Bloxham says the sector could see a 7pc increase in goods and services shipped abroad in 2011, building on a rise of 9.4pc in 2010. It is tipping Ireland's trade surplus to hit a record €50bn this year.
"There is an onus on the new Government to try and stimulate domestic demand and help the retail sector.
"If personal taxes can be left on hold for at least two years, as now seems likely according to the Programme for Government, then there is a good chance things will in time start to pick up on the home front, taking the cue from the strong performance of the Irish export sector," the report says.
Mr McQuaid said the Government needs to provide a stimulus to encourage spending and get capital moving again in the country.
"It could take several forms, the SSIA scheme encouraged saving by the State putting €25 in for every €100 saved; the stimulus could be something simple like a €20 credit for every €100 spent, the bottom line is something needs to be done to encourage spending.
"The savings rate in 2009 was 12pc versus 4pc in 2008. That compares to the historic average saving rate of 7pc and we expect it to have been even higher last year," he said.
The banking sector holds the key to the country's future and Mr McQuaid reaffirms that reducing the recapitalisation costs either through Europe taking a stake in the banks or the creation of an insurance fund to cover future losses is "far more important" than seeking a cut in the interest rate on the bailout.
Bloxham expects inflation of 2.5pc this year rising to 3pc in 2012 despite deflation domestically. The biggest driver of price pressures in the short term will be food and energy as world commodity prices continue to soar.
The upward trend in global commodity prices, if maintained, has the potential to push Ireland's headline inflation rate higher this year than originally expected.