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OECD warns more Irish cuts may be needed

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Newspaper delivery drivers sit on their scooters at traffic lights in Dublin yesterday on a day when the OECD said
prospects for the Irish economy have weakened

Newspaper delivery drivers sit on their scooters at traffic lights in Dublin yesterday on a day when the OECD said prospects for the Irish economy have weakened

Newspaper delivery drivers sit on their scooters at traffic lights in Dublin yesterday on a day when the OECD said prospects for the Irish economy have weakened

IRELAND may need to make more budget savings this year to reach its deficit target as growth prospects deteriorate, according to David Haugh, a senior economist at the Organisation for Economic Co-operation and Development (OECD).

"It is possible that the Government will have to do a little more in terms of fiscal consolidation this year" to reach its deficit goal of 8.6pc of gross domestic product, Mr Haugh, head of the Irish desk at the Paris-based OECD, said in a telephone interview yesterday. "The prospects for the Irish economy have weakened."

The OECD is reviewing its 1pc growth forecast for the Irish economy for this year and "risks are definitely to the downside", Mr Haugh said.

On April 5 the Central Bank forecast growth of 0.5pc for the economy and said the Government's budget targets remain within reach even as the economy slipped into a recession in the last quarter of 2011.

Ireland will find it "tough" to re-enter international bond markets next year and yields need to fall to between 5pc and 6pc for funding costs to be sustainable, Mr Haugh warned. The country's international rescue programme of €67.5bn finishes at the end of 2013.

Ireland's October 2020 bonds, regarded as the benchmark, yielded 6.82pc yesterday, down from 9.1pc at the start of December. Finance Minister Michael Noonan said last month the Government would lower its 1.3pc growth forecast.

Michael Saunders, head of European economics at Citigroup in London, said he expected the Irish economy to contract this year and that missed fiscal targets and weaker growth may require the country to seek a second bailout.

"I think Ireland will miss its fiscal targets this year, next year, the year after that and probably the year after that as well," he said by phone yesterday. "More cuts would be counterproductive as it would just deepen the economic hole."

Ireland's economy probably shrank for a third consecutive quarter in the first three months of this year, according to Mr Saunders, who cited recent declines in retail sales, industrial production and property prices. "The signs aren't very healthy," he added.

(Bloomberg)

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