No growth likely in Irish economy until 2012 - OECD
Published 25/05/2011 | 12:07
The Irish economy is unlikely to grow this year as tax hikes and other austerity measures continue to hit consumers, the Organisation for Economic Cooperation and Development (OECD) said today.
But it is expecting growth of 2.3pc next year, according to its latest global economic outlook.
"Ireland is continuing to undertake a comprehensive and vital adjustment programme to reduce its macroeconomic imbalances and restore its banking system to health," the OECD said.
"Despite robust export growth, weak domestic demand and ongoing fiscal consolidation have prevented an economic recovery from unfolding so far."
The OECD said a "modest upturn" of output was expected this year as domestic demand stabilises, before gathering pace in 2012.
However, unemployment is predicted to stay high and deflation will also continue.
The Government last month cut its economic growth forecast for this year to 0.75pc from 1.75pc - this compares with a prediction of 0.9pc from the Central Bank.
Under the terms of the €67.5bn in loans from the European Union and International Monetary Fund, the deficit must be reduced to under 3pc by 2015.
"The fiscal position remains characterised by high deficits, reflecting negative cyclical effects, the collapse of housing-related tax revenues and the large cost of bank recapitalisation," the OECD said, adding that the banks should be recapitalised as soon as possible.
The report also called for improvement in competitiveness to remain a focus.
Globally, the OECD said recovery was "firmly under way", although the pace differed between countries and regions.
In Europe, growth is being driven by France and Germany.
However, the report warned historically high unemployment as a result of the crisis should prompt countries to improve labour market policies to boost job creation.
Euro area growth is predicted to reach 2pc for the next two years while the US is projected to see activity rise by 2.6pc in 2011 and by 3.1pc next year.
"The recovery is becoming self-sustained, with trade and investment gradually replacing fiscal and monetary stimulus as the principal drivers of economic growth," the OECD said.
"Confidence is increasing, which could add further buoyancy to private sector activity."
But it also warned of potential hazards including rises in commodity prices.
And a stronger-than-projected slowdown in China and the continued "unsettled" fiscal situation in the US and Japan could also threaten growth.
“This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again,” said OECD secretary-general Angel Gurría.
“There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies.”