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Ireland's economic pain will intensify, warns EU


'Gloomy outlook': Joaquin Almunia (Sean Gallup/Getty Images)

'Gloomy outlook': Joaquin Almunia (Sean Gallup/Getty Images)

'Gloomy outlook': Joaquin Almunia (Sean Gallup/Getty Images)

IRELAND will suffer the biggest economic decline in the EU and have the highest budget shortfalls and jobless levels, the European Commission said yesterday.

Revising its forecasts from January, EU Commission officials now say they expect Europe's economy will shrink by 4pc this year and by 0.1pc next year.

It also warns the eurozone will not start to recover until the second half of next year, despite some recent "positive signals".

The Irish economy is now forecast to contract at more than double the average for the euro region, with a 9pc decline pencilled in this year and a further 2.6pc in 2010.

Our employment crisis is also set to deteriorate, with the Commission forecasting an average jobless rate for the euro area of 9.9pc this year and 11.5pc in 2010, with the highest rates expected in Spain and Ireland.

Both countries are facing potential unemployment rates of 16pc next year, it warns.

Deep recession

Ireland also comes out badly on the budget deficit forecasts, with the EU stating that the country is facing a protracted and deep recession.

The Government last night tried to put a brave face on the Commission's revised forecast. A spokesman said the EU had recognised the steps Ireland had taken to deal with our economic problems.

However, Fine Gael deputy leader and finance spokesman Richard Bruton said the figures confirmed the Government's own forecast for the public finances "is once again off the track".

He added: "It is crystal clear that the country needs a new government with new ideas to slow the decline in the economy and bring in genuine initiatives to stimulate employment and protect jobs. The recession is a direct result of Fianna Fail's discredited policies and its deliberate stoking of the debt-fuelled housing bubble."

Labour party finance spokeswoman Joan Burton described the figures as "another wake-up call for the Government".

While the average Government deficit across the euro region is forecast to reach 6.5pc next year, the Commission warns that without changes to policy the Irish budget deficit could reach 15.5pc of GDP.

This would mean the country's debt burden could swell to almost 80pc of GDP next year, more than three times the level just two years ago.

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The overall shortfall will break the EU limit of 3pc of gross domestic product for the first time since 2003 with 13 euro members expected to breach this budget threshold next year.

On the positive side, the Commission believes a decline in wages across the economy should start to reverse a sharp fall in the country's competitive position which has been on the slide.

Commenting on the report, Economic and Monetary Affairs Commissioner Joaquin Almunia said the European economy is in the midst of its deepest and most widespread recession in the post-war era.

"The outlook is still gloomy, but for the first time since mid-2007 some positive signals have appeared in the last week," he added.

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