Economy on course for big rebound next year
Key report predicts growth to hit 2.8pc
Published 24/06/2010 | 05:00
THE economy will rebound dramatically next year after two years of brutal contraction, a new report will forecast today.
There will be growth of 2.8pc in 2011 after the declines of 1.1pc this year and 7.1pc in 2009, accountants Ernst & Young predict. This will make Ireland the second fastest growing economy in the eurozone after Slovakia next year.
"Ireland's short-term economic recovery will outperform most members of the eurozone in the next 12 to 18 months," Ernst & Young senior partner Mike McKerr said. "Today's forecast provides further evidence that Ireland is finally turning a corner and provides reassurance that we will not experience a 'lost decade' of economic growth as many had feared."
Business leaders are also showing a new-found confidence in the economy as they upgraded forecasts this week.
Aer Lingus confirmed the airline's performance in April and May was stronger than the same time last year, despite the downturn in the sector.
Companies are also reporting increasing activity, prompting them to increase staffing levels for the first time in two-and-a-half years last month, the closely watched NCB Purchasing Managers Index revealed.
Shoppers are also putting their hands into their wallets again with retail sales figures rising for the first time in years, spurred by the Government's car scrappage scheme.
The Ernst & Young quarterly report by Oxford-based economist Marie Diron is the latest in a series of positive forecasts to predict the economy has turned the corner.
Taoiseach Brian Cowen appeared to back the report's findings when he told employers at the annual IBEC dinner last night that the economy would start growing again this year after going through "the worst recession in the history of the State".
The report found Ireland's cost base fell further than any other country in the eurozone last year and again this year as deflation and wage cuts slashed costs. The report also predicted Ireland would continue to experience the slowest inflation rises across the eurozone after Greece until at least 2014.
Earlier this week, Dublin-based Bloxham Stockbrokers predicted the economy would expand as early as this year as consumers started spending again and exports continued to surge -- helped by the plummeting value of the euro.
"We believe the recession has ended, and assuming the eurozone debt issue doesn't turn into a full-blown crisis, Ireland should be roaring back up the eurozone GDP growth league table over the next 12 months," Bloxham economist Alan McQuaid said.
Falling costs have helped spur companies from Donegal to Drogheda and Dublin to announce job creation plans this month.
Multinational US internet company MFG will add 50 new jobs in Drogheda. Other Irish-owned companies planning to hire include Donegal engineering company E & I Engineering, which aims to recruit 71 people;and the Dublin Airport Authority, which is seeking to fill 500 jobs to staff the airport's new Terminal 2.
However, the Ernst & Young report found unemployment here is now the highest in the eurozone, and is likely to fall very slowly over the next few years. The rate of jobless will slide slightly from 13.8pc this year to 13.4pc in 2011. This will gradually inch down 11.2pc by 2014.
The report also warned there would be no quick return to the low levels of unemployment seen during the boom years.
"Any medium-term economic recovery in Ireland will be largely jobless. Ireland is forecast to rise just one place to 15th position behind Greece and Spain," the report said.
While the economy here and elsewhere in northern Europe is set to return to growth, Ernst & Young is gloomy about the prospects for countries such as Greece, Portugal and Spain which are expected to suffer a decade of poor growth.
The company downgraded its forecasts for the eurozone as a whole and predicted the north and the south would pull further apart.
"These countries (in the south) are not expected to recover to their pre-crisis levels of activity until 2014, and all face significant further rises in unemployment," the Ernst & Young report added.