Irish Central Bank Lowers Growth Forecast for 2011
Irish Central Bank Cuts 2011 Growth Forecast
Aidan Crawley/Bloomberg
An open top bus passes Ireland's central bank, center, in Dublin.
An open top bus passes Ireland's central bank, center, in Dublin. Photographer: Aidan Crawley/Bloomberg
Jan. 28 (Bloomberg) -- International Monetary Fund First Deputy Managing Director John Lipsky talks about global policy coordination, fiscal challenges and economic outlook. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday" at the World Economic Forum in Davos, Switzerland. (Source: Bloomberg)
Ireland’s central bank cut its forecast for economic growth this year by more than half as the government steps up budget cuts and consumers trim spending.
Gross domestic product will probably rise by 1 percent this year instead of the 2.4 percent forecast in October, after falling an estimated 0.3 percent in 2010, the Dublin-based bank said today in its quarterly bulletin. The economy may expand 2.3 percent in 2012.
“The prospects for the Irish economy for this year and next have deteriorated in recent months,” the central bank said. “Domestic demand will weigh more heavily on growth this year and next than was anticipated.”
Ireland’s government said in December it plans to cut spending and raise taxes by 6 billion euros ($8.2 billion) this year, double an earlier target. The central bank’s October forecast was based on a budget package of 3 billion euros.
Finance Minister Brian Lenihan unveiled the tougher austerity measures as part of an 85 billion-euro rescue package from the European Union and International Monetary Fund. The government aims to lower the budget deficit to below the EU limit of 3 percent of GDP in 2014 from about 12 percent last year. Including the cost of bank bailouts, the shortfall amounted to 32 percent of GDP in 2010.
Capital Requirements
The central bank’s next review of banks’ capital needs will be “a lot more granular” than previous tests, Maurice McGuire, the bank’s chief economist, said at a press conference in Dublin today. The outcome “should also address fears about tail risks on the balance sheets,” he said.
Exports are expected to rise by 5.9 percent this year, after expanding by an estimated 8.4 percent in 2010, the central bank said. Consumer spending is forecast to fall by 2.2 percent in 2011, compared with an estimated 1.7 percent drop last year, as austerity measures weigh on disposable income, the bank said.
“The domestic part of the economy isn’t strong enough to have confidence in a sustained recovery,” said Brian Devine, chief economist at NCB Stockbrokers Ltd. in Dublin. “There is going to be a fairly big drag from the domestic sector again” with exports probably the only positive contributor, he said.
Unemployment is forecast to climb to 13.7 percent this year before dropping to 13.4 percent in 2012, the central bank said. Capital investment is predicted to decline 13 percent this year as construction expenditure continues to fall.
The soaring cost of rescuing banks as well as the international aid from the EU has eroded public support for the government, polls show. Prime Minister Brian Cowen said last week he will dissolve parliament tomorrow and set a date for national elections.
To contact the reporter on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net
To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net
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