Wednesday 18 January 2017

Recovery 'will be slower than anticipated'

Published 25/06/2010 | 05:00

THE economy will recover only slowly from the crash, with unemployment still likely to be around 9pc in five years' time, the IMF report says.

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The economy is expected to contract slightly again this year.

The document does not give forecasts for next year -- where several analysts are now predicting growth of around 2.5pc.

But it says it will be five years before the economy reaches 3.5pc growth.

This is significantly less than government projections of growth of more than 4pc from 2012.

"Exports will lead the recovery.

"But spillover into the domestic economy will be limited because of exporters' heavy reliance on imports, their tendency to employ capital-intensive processes, and the sizeable repatriation of profits by multinationals," it says.

The economy will also suffer from the unwinding of debts run up during the boom, pressure on prices and restraint on wages.

A shortage of credit is also seen as hampering growth, at least for the next 18 months.

"De-leveraging to reduce the loan-to-deposit ratio and banks' risk aversion will constrain lending and the pace of economic recovery, at least in 2010-11," the IMF says.

Banks also need to be careful about the risk involved in lending to small companies in current conditions.

"The targets for SME (small and medium enterprise) lending need to be combined with strong prudential safeguards, as the non-performing loans of this sector have grown rapidly."

Economic conditions in Ireland and abroad make forecasts subject to "much uncertainty", with deflationary risks and self-reinforcing contractionary pressures.

"Financial sector weakness, falls in real estate prices and high unemployment could continue to reinforce each other," it says.

"Prices and wages are declining, with beneficial long-term effects.

" But deflationary tendencies would raise the real debt burden of highly-leveraged businesses and households, impeding growth."

Irish Independent

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