€85bn rescue may not cover deficits, warns economist
IT remains to be seen whether even the €85bn under the EU/IMF rescue plan is enough to cover Ireland's public finance and banking deficits, the chief economist at Bloxham Stockbrokers says.
In his quarterly commentary, Alan McQuaid says the €6bn to be taken out of the economy in 2011 appears to be non-negotiable as far as the EU/IMF is concerned. Fine Gael and Labour, who launched their Budget proposals yesterday, are likely to form the next government, but will have little room to change policies.
Bloxham's forecasts are closer to those of the EU Commission than the more optimistic government projections in its four-year plan.
Mr McQuaid believes exports will drive a 1.5pc increase in GDP next year -- which is close to Department of Finance forecasts -- but expects this to improve only to 2.5pc growth in 2012.
"With such a figure being taken out of the economy, it is hard to see domestic demand picking up. In our view, both personal spending and fixed investment will fall for the fourth year running in real terms next year, though not as much as in the past three years," he says.
It is possible the department will be proved right, if consumers respond to good news on the export side and fresh investments by foreign firms, he says. But Bloxham's is much more pessimistic than the official forecasts about investment, especially construction.
"It is difficult to see the property market improving dramatically until labour market conditions get better and consumers become more confident about job prospects," the report says.
Mr McQuaid argues that there has been too much focus among policymakers on the banking sector and not enough on rising unemployment.
"The Government needs to come up with some major pro-employment initiatives that will boost job opportunities. We think reducing employers' PRSI or cutting the minimum wage would enhance the job prospects of the unemployed," he says.
"Looking at all the relevant factors, we think the jobless rate will end this year at 13.5pc but, even with further severe fiscal austerity in 2011, we don't see it going much above the 14pc level."