Experts say growth will slow next year
ECONOMIC growth will slow next year due to the eurozone debt crisis, the Economic and Social Research Institute said yesterday.
The ESRI has reversed its previously optimistic forecasts because of the impact of problems in the single currency.
It says the Government should stick to the cash targets in the plan, which is €3.6bn for next year, rather than the deficit ratio, which is 8.6pc of output (GDP).
If output grows less than planned, the €3.6bn would not meet the ratio target.
However, the IMF-EU would have to agree to a switch to fixed reductions, which ignore swings in the economy.
Ireland should be able to continue to meet its fiscal targets next year, says the ESRI, but it will become harder to do so as the external environment becomes increasingly unfavourable.
Total output, as measured by gross domestic product (GDP), will rise by 2.2pc this year and national income will increase by 1.2pc, which the ESRI described as a good performance
But the worsening situation in the eurozone will mean that economic growth will slow significantly next year.
GDP in 2012 will grow by just 0.9pc, while national income will contract by 0.3pc.
Exports will grow but by not enough to counteract weak domestic demand.
The ESRI is more optimistic about the country's solvency than the Department of Finance. It says the underlying national debt will peak at less than 105pc of GDP in 2013 and could fall back to 98pc by 2015, "when the economy is likely to return to more normal growth trajectories".
The report says the debt crisis gripping the eurozone was likely to send the countries in the currency union into recession.
Exports are forecast to grow by 6pc this year, but with external demand expected to be weak next year, the ESRI has reduced its forecast for 2012 to 4.7pc.
Unemployment is set to stay stubbornly high at 14.5pc in 2012, with a further fall of 22,000 in the numbers at work.
The jobless rate would be even higher were it not for fewer people participating in the workforce and expected migration of 40,000 a year.
The savings rate is expected to remain elevated as some households continue to hold precautionary savings, while others continue deleveraging.