Ireland paying 'high cost' for saving banks, says OECD
Published 18/11/2010 | 12:25
One of the world's leading think-tank's today warned that Ireland is paying a high cost for saving its banks.
The Paris-based Organisation for Economic Co-operation and Development (OECD) said the economy appeared to have touched the bottom in the first half of this year.
In its twice-yearly report, it forecast a mild recovery, driven by exports, but it also warned that consumer demand would remain sluggish.
"The Government intends to continue policies to bring the fiscal accounts closer to balance and to restore competitiveness," the OECD report said.
"If sustained, this should help bolster activity and support employment growth in the medium run.
"The banking restructuring strategy aims at transferring non-performing loans to government-backed entities, and then injecting public funds in undercapitalised banks.
"While this approach has the merit of preserving banking stability, it comes at a high cost for the public finances and is creating stress in the Irish sovereign debt market."
The OECD said it expected Gross Domestic Product (GDP), the value of all goods and services, to show a decline of 0.3pc over the course of this year but turning around next year with growth of 1.5pc in 2011 and then 2.5pc in 2012.
It also forecast unemployment of 13.4pc next year and 12.4pc in 2012.
The Department of Finance said earlier this month it expected annual average GDP growth to be 2.75pc over the three years from 2011 and 2014.
The OECD also said the Government's plan for a four-year system of drastic Budget cuts and savings would be essential to achieving ambitious aims of reducing the deficit to 3pc of GDP by 2014.
The deficit is above 30pc of GDP after the banking bail-out of about €80bn.
The organisation said the economy was undergoing massive adjustment.
"Past imbalances are gradually unwinding in banking, the housing market, the Government budget and the labour market, leaving a large impact on public debt and unemployment," the report said.
"After two years of deep recession, activity seems to have reached a bottom in the first half of 2010.
"A mild recovery is projected to be driven by exports, while domestic demand is likely to remain sluggish."