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Economy on the road to recovery, ESRI predicts

THE economy will start growing again next year as unemployment begins to drop and house prices stabilise, a new report by the country's most influential economic think tank reveals.

And separate new figures published yesterday showed that consumers were becoming slightly less worried about their finances and were more inclined to spend.

In its latest quarterly economic bulletin, the Economic and Social Research Institute (ESRI) forecast the economy would grow by 2.75pc next year.

The report, published today, predicted that unemployment would fall to 13pc in 2011, but this would largely be a result of 100,000 people leaving the country between 2009 and 2011.

It also predicted that house prices would start to stabilise next year, marking a 50pc decline from the peak of the property boom.

The findings will come as a boost to the Government's attempts to steer the country out of recession. They also come as new figures show that confidence in the recession-battered economy is starting to grow.

The latest KBC/ESRI consumer sentiment index revealed that shoppers remained concerned about the economic outlook, but there had been a gradual, if uneven, improvement in the mood of consumers in the past few months.

Although lower than the sharp upturn experienced in January, financial experts believe the mood of the recession-weary public is gradually improving.

However, the survey found that people remained cautious and held out little prospect of a spending spree.

The ESRI also warned that the economy faced many tough obstacles and was still expected to lag behind growth in other EU countries. This year's budget deficit would be larger than last year's as tax revenue continued to fall and more money had to be borrowed to support the banks, although it would fall in 2011, it said.

Although experts expected the economy to grow by 2.75pc, employment would be stagnant, with almost 1.9 million people on average working in both 2010 and 2011, the ESRI said.

"This expected fall in the rate of unemployment is related to expected migratory outflows -- 60,000 in the year ending April 2010 and 40,000 in the year ending April 2011," the ESRI said. "We also expect to see ongoing falls in labour force participation."

Fine Gael finance spokesman Richard Bruton last night accused the Government of making emigration its strategy of choice.


The Central Bank last week warned that it would be next year before the economy was growing strongly enough to create jobs. The bank said the projected upturn, based on a gradual recovery in exports and a moderation in the rate of decline in domestic demand, would only see jobs created several months later.

The ESRI said the economy would contract by half a percent this year, with growth in 2011 driven by a strong export recovery, forecast to grow by 4.5pc.

The quarterly economic commentary predicted that Ireland would regain some of the competitiveness it lost in the run-up to the recession.

The think tank said it maintained its belief that the economy could experience growth rates of 5pc in the coming years, but warned there were too many obstacles standing in the way next year.

"These obstacles include the ongoing difficulties in the banking system," the ESRI said.

It added that while the likely injection of €33bn into the banks would be a large addition to the national debt, it would be "manageable" and would not affect the State's solvency levels.

The ESRI said investment was expected to return to marginal growth next year, despite an expected contraction of more than a fifth for 2010.

Irish Independent