Friday 20 October 2017

OECD warns growth will be slower than forecast

Peter Flanagan

Peter Flanagan

IRELAND'S economic growth will be slower than government forecasts, a leading think-tank said yesterday.

In its biannual 'Economic Outlook' report, the Organisation for Economic Co-Operation and Development (OECD) said it was forecasting a "mild recovery, driven by exports, while domestic demand is likely to remain sluggish". Gross Domestic Product (GDP) will grow by 2pc next year and 2.6pc in 2012.

Last month, the Department of Finance said it was assuming average growth of 2.75pc per annum over the next four years when outlining the €6bn worth of cuts in December's Budget.

The OECD believes unemployment has peaked this year but the rate will remain high for years to come. It forecasts 13.4pc unemployment next year, falling to 12.4pc the following year. Domestic demand, having slumped in the past three years, is expected to grow marginally in 2011 and 2012.

The Government's austerity plans, if sustained, should help bolster activity and support employment growth in the medium term, but the organisation warned the country was paying a high cost for setting up NAMA and recapitalising the banks in an effort to save the banking system.

"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," it said.

"Specifying and then implementing the recently outlined four-year consolidation plan will be essential to achieve the Government's ambitious objective of reducing the deficit to three percent of GDP by 2014," the group warned.

"The economy is undergoing massive adjustment. After two years of deep recession, activity seems to have reached a bottom in the first half of 2010."

Contraction

Ireland's growth levels will be superior to the rest of the eurozone but the contraction in the Irish economy over the last three years has been far greater than the wider euro area.

The eurozone is set to expand 1.7pc this year and next, with growth picking up to 2pc in 2012.

Globally, the OECD has cut its forecasted growth for the global economy, reducing it to 4.2pc next year from the 4.5pc predicted in May. The year 2012 will see the global economy expand by 4.6pc, the think-tank said.

"We have a soft patch but we don't think it's going to last long," said OECD secretary general Angel Gurria. "We're going to recover in the second half of 2011 and have a better 2012."

Mr Gurria added that European governments should lend support to Ireland to contain the threat to the rest of the continent.

"Let's ring fence this situation and get on with it because it doesn't reflect the reality of what's going on in Europe," he said.

Despite supporting the austerity measures taken by the UK government, the group warned that the fiscal tightening was creating "headwinds" that warranted a cut in economic growth forecasts in the UK. GDP is now expected to grow by 1.7pc next year, compared with the 2.5pc growth the OECD expected in its prior report.

In the US, growth will remain "moderate through 2011 and 2012 as households continue to rebuild net worth and the unemployment rate declines slowly".

GDP in the US is forecast to grow by 2.2pc next year and 3.1pc in 2012.

German output will grow 3.5pc this year and 2.5pc next year, meaning GDP will have recovered all the losses of the recession during 2011. However, the expansion in neighbouring France will be less robust, with GDP gaining 1.6pc in both years.

Irish Independent

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