Growth to fall as slump hits big economies
Published 23/11/2011 | 05:00
IRELAND'S economic growth will slow next year as the big economies move into recession but the economy will recover strongly from 2013, a new economic forecast says.
The winter analysis from the Ernst & Young Economic Eye raises its estimate for growth this year to 1.2pc, but reduces next year's forecast to just 0.5pc.
However, this is better than its current outlook for the eurozone, Britain and the US, where output is expected to shrink by more than 0.5pc.
Emerging economies will also suffer, with both China and India contracting, the analysis says.
"Manager surveys are falling in the emerging economies, there are huge difficulties in the eurozone and Ireland is very exposed to the UK and US," Neil Gibson, economic adviser to Ernst & Young, said.
"But Ireland's export business is very diverse, between services and manufacturing, and between the different sectors. This will continue to distinguish the country from the likes of Portugal, Greece and Spain."
He sees Ireland returning to its long-term growth path of 4pc a year from 2014-2030, although it will take that long for employment to return to the pre-crash levels.
In a separate report, ratings agency Standard & Poor's (S&P) said Irish workers have endured the deepest wage cuts in Europe, dramatically boosting competitiveness.
S&P compared action taken to tackle the debt crisis in Ireland, Spain, Portugal, Greece and Estonia.
"Estonia and Ireland have adjusted more, and demonstrated greater flexibility in the face of external pressures, compared to other net debtor economies," S&P said.
"Unit labour costs", a measure used to compare wage costs in different countries, fell by 11pc in Ireland from 2008 to 2011, according to the report.
Greek wage costs fell by a little over 0.5pc over the same period and costs actually rose in Portugal, the report said.
Estonia, which is outside the euro area, saw the biggest fall after Ireland in labour cost. Both countries saw a boost in exports.
Despite the positive trend, S&P warned that Ireland and Estonia are vulnerable to a global slowdown. "Their wide open economies leave them highly susceptible to external shocks," it said.
Figures which may bear that out showed that export growth began to stagnate in the the third quarter.
The 'Investec Ireland Export Analysis Report' said exports had increased 1.7pc year on year by the end of September, but grew only 0.4pc between July and September.
"Developments in the euro area will act as a drag over the coming quarters, but a continued improvement in cost competitiveness is likely to enhance the resilience of the exporting sectors," Investec said.