Unemployment will remain high until we 'fix the banks'
THE economy will start growing again in the second half -- but until the banking sector is fixed unemployment will remain at elevated levels, Bloxham Stockbrokers predicted yesterday.
The Dublin-based stockbroker issued a downbeat assessment of the economy, although it still envisaged the economy growing by 3pc next year. In GDP terms, it will shrink this year by 0.8pc and 3pc when measured by GNP.
The broker's chief economist Alan McQuaid said there were still questions hanging over the banking sector. "Until that sector returns to some sort of normal lending practices, it is difficult to see the economy maximising its potential and/or a serious dent being made in reducing the numbers on the dole queues."
The broker still expects unemployment to exceed 10pc by 2012 and it noted little recent improvement in the employment picture. It questioned whether there had been any recent stabilisation of unemployment trends.
"The deceleration in the rise in the unemployment rate is more a reflection of a pick-up in outward migration and reduced labour force participation,'' said the broker in its quarterly economic outlook. The broker acknowledged that despite a return to growth, the level of spending by consumers would fall further in real terms in 2010.
"All in all, the eventual recovery in consumer spending is likely to be slow and gradual.
"Clearly what happens to the labour market will be critical to the fortunes of the consumer, and in turn spending, over the next few months,'' the broker said. Mr McQuaid said it was "critical'' from an Irish perspective that the US economic recovery held up. "And the indications are that it will," he said.
"There is every chance the world's largest economy will be back posting positive employment increases within the next couple of months,'' he said.
He said while the unemployment rate was nearing its peak, and earlier predictions of 17pc were wide of the mark, there would still be a large group of unskilled workers left behind on the dole queues.
"We don't see the jobless rate returning to the 4pc level again unless major policy initiatives are taken to upskill a significant part of the workforce."
Mr McQuaid said even when the economy returned to "normal" the permanent jobless rate would not drop below seven or 8pc. He said significant cost adjustments were still needed leading to the emergence of a "leaner and meaner'' export model.