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EU debt crisis will lead to even weaker growth, says Davy


EUROPE'S deepening debt crisis will further depress the Irish economy this year and means the Government won't meet its debt reduction targets.

The grim prediction comes in a new report that says economic growth here will be even weaker in 2012 and that the number of people losing their jobs will continue to rise.

Davy Stockbrokers economist Conall Mac Coille has also forecast much weaker prospects for the one sector of the economy that has been weathering the storm.

Growth in Irish exports, he said, will fall from 4.5pc to 2.8pc this year, as struggling euro countries will reduce demand for Irish goods and services. About half of our exports are to the euro area, with the UK and US accounting for 22pc and 18pc respectively.

Mr Mac Coille has revised down his forecasts for the rate at which the Irish economy will grow in the next 12 months -- from 1.7pc to just 0.4pc.

This is well below the growth predictions made by the Department of Finance, the EU Commission and the International Monetary Fund. Their official forecast is that the economy will grow by more than 1pc this year and by 2pc in 2013.

The targets set in the Budget to cut the deficit to 8.6pc of GDP this year are based on these official forecasts. But Davy says that because growth will be much weaker, the Government will miss this target.


Mr Mac Coille says his much lower economic growth forecast reflects a combination of weaker tax revenues and higher social welfare payments he believes the Government will face this year. And he warns there is a risk his 0.4pc economic growth figure could prove optimistic. There is a "significant risk" that it could be even weaker.

In 2013, he suggests, there will be some pick-up in activity, with the economy likely to expand by 1.6pc, below official forecasts of 2pc.

The debt crisis is the main reason why Mr Mac Coille expects the economy to be depressed further in the months ahead.

Uncertainty about a solution to the crisis has led to a collapse in confidence, he says, with consumers and investors postponing any spending amid the uncertainty.

He cautions that he is making these predictions at a time when there is enormous uncertainty about what will happen in the eurozone. Any further deterioration could mean that the outlook would be worse, he says.

"A more protracted and severe slowdown in the euro area poses clear downside risks to our forecasts for Irish GDP growth in 2012 and 2013. There is clearly potential for a renewed intensification of the debt crisis", warns Mr Mac Coille.

He further warns that a more severe downturn in the euro area could pose the risk that Irish Government debt will reach unsustainable levels.

"By 2013, it is impossible to say with a high degree of confidence where growth prospects will be. But it is not implausible that global and Irish GDP growth could suffer a protracted period of weak expansion if the negative impact of the global financial crisis on economic activity is more persistent that expected," he says.

Irish Independent