Economy will not grow as quickly as forecast - Central Bank
Published 31/01/2011 | 15:33
The economy will not grow as quickly as previously forecast, the Central Bank warned today.
While exports will do well this year, consumers remain more concerned about the impact of tax hikes and cutting debts than spending.
Experts said they expect gradual growth in the economy during the year but the unemployment crisis will only begin to ease in the last few months of 2011.
The Central Bank's spring outlook said the value of all goods and services, measured by Gross Domestic Product, is projected to grow by about 1pc this year and rise to 2.3pc next year.
The forecast is down significantly from October when it suggested 2.4pc growth for 2011, based on budget savings of €3bn this year.
The Central Bank said it was forced to revise its figures after the Government decided on €6bn of tax increases and spending savings in the budget.
"While this is the Bank's central scenario, a range of both stronger and weaker outcomes are, of course, quite plausible," the report said.
It said growth will be mainly linked to the export sector this year.
On the consumer front, the report said domestic demand remained subdued and although the lack of spending is beginning to moderate, the impact of the budget cuts will pile on further pressure.
"While the contraction in consumer spending is beginning to moderate, the underlying determinants of consumption are likely to remain weak," the report said.
"With employment projected to continue to fall slightly in 2011, with the effect of higher taxes on disposable incomes, and with households seeking to reduce their indebtedness, consumer spending is forecast to contract further this year."
On the jobs front it will be 2012 before there is any growth, with a slight rise in the unemployment rate this year to 13.7pc before a fall to 13.4pc the following year.
The bank went on to warn that stagnant incomes and high unemployment will hold down consumption next year.
On trade, the Central Bank said growth in Ireland's main export markets will be lower this year than last year but will still support relatively strong exports.
The growth of import business, however, is likely to remain sluggish, the bank said.
Fine Gael finance spokesman Michael Noonan said the revised forecasts showed the budget was hitting home.
"Fine Gael's own proposals for Budget 2011 would have kept tax hikes to a minimum, with no income tax increases at all this year," he said.
"It's crucial that any future corrections to Exchequer spending focus on savings and public sector reforms, rather than damaging tax hikes."
Mr Noonan said the Central Bank report backed up his party's claim that more tax costs jobs.
Labour finance spokeswoman Joan Burton said the report showed Ireland was still stuck in recession.
"Back in 2008, (Finance Minister) Brian Lenihan said that Ireland would be the first country out of recession, but it now looks like we could be the last one out because of Fianna Fail's harsh fiscal medicine," she said.
"At a time when most of Europe is growing again, and Germany is powering ahead, Ireland is still mired in recession.
"They (Central Bank) now expect that the massive €6bn budget adjustment will cause domestic economy, measured by GNP (gross national product), to contract by a further 0.3pc in 2011, extending Ireland's recession to three years.
"Continued strength in the multinational export sector is certainly welcome, but it is not enough to offset weak consumer demand and domestic investment."