Downturn bottoms out but jobless to hit 13.5pc
Central Bank predicts return to growth in six months and urges property tax
The economic downturn is "coming to an end'' and positive growth may return by the middle of this year, the Central Bank predicted yesterday. However, unemployment will still rise to 13.5pc in 2010.
The economy will shrink this year by 2pc (GNP) with consumer spending remaining weak as households concentrate on paying down debt, said the bank's quarterly statement. Its prediction of 13.5pc unemployment is lower than previous forecasts, but the unemployment rate is stabilising because of emigration and people leaving the workforce entirely.
"The economy is close to the trough of the downturn in output but unemployment is set to rise further," was how the bank summed up the situation.
In an overall upbeat assessment, the bank said the "underlying strengths'' of the economy remained in place despite the steep recession. This could lead to growth of between 2.5pc and 3pc by 2011.
These strengths were a high level of education and labour force "flexibility'', the bank said.
The consumer -- the biggest driver of the economy -- was likely to remain "subdued'', said the bank. "Eventual recovery in consumer spending is likely to be slow and gradual."
While the bank's chief economist Maurice McGuire delivered an optimistic message, he said a recovery depended on three things: continuing to reduce the deficit, stabilising the banking sector and improving competitiveness.
The bank once again spoke of its support for a property tax, which it said would help to create "a more stable and reliable tax base''.
Inflation in Ireland will remain "subdued'', averaging about 1pc and remaining below the eurozone average.
The reason it will remain subdued is because of unemployment and wage cuts. Low inflation has the advantage of helping Ireland's price competitiveness.
Asked by reporters whether the Government should cut the minimum wage, Mr McGuire said that it might help lower wages in some areas, but the main drive should be to reduce wages across the economy.
The bank estimated that pay per employee dropped by 2.9pc during 2009, with a similar drop likely this year.
The bank said that real living standards remained high by international standards and some historical perspective was useful in looking at the current crisis.
The bank refused to say when the country might be able to create net additional jobs, but it was unlikely to be this year, said members of the bank's economic team.
A large amount of the job losses in 2010 will continue to come from the construction sector which is continuing to suffer contraction.