The economy could grow by as much as 2.7% next year if forecasts of a global revival materialise, a leading think-tank has claimed.
Despite the projected upturn, advisers at the Economic and Social Research Institute (ESRI) have urged the Government to press on with plans to save more than 5 billion euro in the next two budgets.
Its quarterly economic commentary for spring estimates that gross domestic product, the value of all goods and services including the multinationals, will grow by 1.8% this year and 2.7% next year.
It said that the homegrown economy, measured by gross national product and what the ESRI calls a more reliable assessment of Irish business, will increase by just 1.0% this year and 1.5% next year.
The think-tank warned that the Irish economy remains reliant on the international environment as a driver of growth, which it expects to benefit from the impetus given by US spending policies. "This is a crucial assumption for our forecast as exports are the main contributor to Irish economic growth at present," the ESRI said.
The spring forecast noted only a limited change in the unemployment crisis, and forecast the jobless rate to steady at 14.2% this year before falling to 13.9% next year. It put this down mainly to continued net emigration. It said inflation would sit at 1.5% this year and 1.7% next with average hourly earnings to rise by 1.2% and 1.5% over the two years.
The ESRI highlighted the importance of Europe and said that growth will be worse than anticipated if trading performances with our main partners on the continent are not realised.
Its review pointed to the successes the Government has had in easing the state's debt burden both through renegotiating the costly 3.1 billion euro a year Anglo promissory notes and extending maturities on loans from Europe and the International Monetary Fund.
But it urged the coalition to stick to its plan to make savings totalling 5.1 billion euro in budgets next year and 2015. "By doing so the deficit will be eliminated and the public finance contraction will not be weighing on the domestic economy," the think-tank said.
On another front the ESRI also cautioned the Government about the banking sector's ability to meet demand for lending from small and medium sized businesses if economic growth starts to pick-up as forecast. It suggested the Irish banks will not be adequate to deal with the calls for credit.