Noonan and EU to revise forecasts as IBEC predicts lower growth
THE economy will grow more slowly than forecast this year and next year, business lobby group IBEC said in a report released yesterday ahead of two major reports on the economy later this week.
IBEC's gloomier forecasts come as the EU is set to announce new forecasts for growth in Ireland and the other 26 member states later today.
The Government also plans to issue a medium-term economic plan on Thursday which is expected to cut growth forecasts.
Finance Minister Michael Noonan will be faced with a difficult political and economic choice in his Budget in seven weeks' time if official forecasts suggest the economy is not expanding as quickly as hoped.
Slowing growth could force Mr Noonan to unveil extra taxes or further cuts in the Budget, which is already expected to be among the harshest seen in recent years.
IBEC said yesterday that it now expects gross domestic produce to expand 0.8pc this year (down from 1pc) and expand 1.8pc in 2013 (down from 2.3pc). "Strong growth remains elusive," economist Fergal O'Brien said in IBEC's quarterly report on the economy. Gross national product is seen shrinking 2.5pc this year and a further 0.3pc next year.
Slow economic growth in Europe, the US and Britain, which is the largest trading partner for indigenous Irish companies, is crimping growth here in Ireland, IBEC said. Renewed consumer worries are also weighing on growth.
"The eurozone and global slowdown has taken its toll on Irish exports," Mr O'Brien said. Goods exports have been stagnant while services exports have been the economy's "shining star", he added.
The lobby group repeated worries that Mr Noonan may change the sick pay scheme to make employers pay more if their employees fall ill and hike PRSI taxes. Such a move "would cost thousands of jobs and would fly in the face of the Government's stated ambition to make Ireland the best small country in the world in which to do business", IBEC said.
IBEC predicts that consumer spending will drop by a further 2pc this year and domestic demand remains fragile. "Austerity alone is not the answer . . . We need an ambitious growth strategy that supports investment, addresses the weakness in the domestic economy and rebuilds confidence," Mr O'Brien added.
Unemployment was likely to remain high although emigration would continue to act as a safety valve, he said.
"While emigration necessitated by economic circumstances can be the source of distress at a personal level, it nonetheless allows individuals to retain skills and gain new expertise," he added.