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Spending splurge to spark the recovery

A SURGE in consumer spending and a hike in exports will spark rapid recovery in the economy, three leading experts predicted last night.

The head of the country's biggest think-tank said there would be a modest lift in the economy in 2011 followed by a period of "quite rapid growth".

ESRI chief economist John FitzGerald said: "We will see a vigorous recovery in 2012." He added that the economy could expand by as much as 5pc a year between 2012 and 2015.

Late last night, his comments were echoed by Dr Alan Ahearne, adviser to Finance Minister Brian Lenihan.

He claimed lower costs were already "kickstarting growth". And in a special report, Bank of Ireland economist Dan McLaughlin forecast that a substantial increase in exports in 2012 would help a recovery.

The optimistic outlooks represent the first definitive sign that a recovery may not be far off and will come nearly two years since the country dipped into recession.

However, Dr FitzGerald warned that taxpayers should brace themselves for another tough Budget next year.

He said there was a need to raise taxes further in the next Budget to cement a recovery in the country's financial position.

The taxpayer was also going to "lose a bomb" on the billions of euro already injected into Anglo Irish Bank, he warned.

Up to €2bn of that will have to be put into troubled Irish Nationwide once it transfers loans to the new National Asset Management Agency (NAMA).

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Mr FitzGerald, research professor at the Economic and Social Research Institute, said that 2011 would still be relatively slow in economic terms, with modest growth being led by the export sector.

But then it would grow by 5pc a year until 2015. And after that, he predicted a return to a "boring", traditional European-style growth rate of 3pc in the long term.

Speaking at the 'Checkout' annual retail conference in Dublin yesterday, he said a short-term boost to the economy was likely to kick in during 2012 as consumers once again started spending money. Workers have been pouring money into savings accounts, building financial security nets in case they lose their jobs as the employment rate hit 12.5pc.

Consumers have also been reducing their debt levels as the economy entered its deepest contraction since the 1930s. Mr FitzGerald described them as being "scared out of their wits".

"At some point we're going to see savings coming back down and at some stage we'll run out of empty apartments in Dublin and Cork and there will be a return to significant building," he added.

His optimistic outlook was further tempered, however, by a stark prediction that the last Budget was unlikely to be the final dose of strong fiscal medicine workers would have to endure.

Mr Lenihan needed to deliver one more "pretty tough Budget", he said.

Dr Ahearne, the minister's adviser, said a number of factors gave rise to optimism. He said there was a 5pc improvement in unit labour costs since the autumn. "This is already kickstarting growth. We are starting to gain market share but we need to do more as we lost our competitiveness during the boom years," he said.


He said that export-led growth would be the engine for the recovery but that it would probably be 2011 before any real impact would be felt, after years of over-dependence on house building. "We are on the road to recovery but it will be a bumpy road. It is still an uncertain world and the financial markets are fragile. Unemployment is still increasing, although the rate has slowed down," he said.

Although Mr FitzGerald believes the Government will eventually lose large sums of money on its expected recapitalisation of up to €10bn in Anglo Irish Bank, he believes it will make a positive return on its combined €7bn recapitalisation to date of Bank of Ireland and Allied Irish Banks.

Mr FitzGerald also believes unemployment will probably continue to rise until the end of this year, having hit 12.5pc in December with nearly 427,000 people on the live register.

"The question is how rapidly it will come down. There will be problems.

"A lot of people who lost their jobs were relatively unskilled," he said. He added it would be "a challenge" to find jobs for many of those workers.

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