Noonan Says Ireland May Cut 2012 Forecast
Irish Finance Minister Michael Noonan said the government may lower its economic forecast for next year as slowing global growth hurts exports.
Ireland may cut its 2012 gross domestic product growth projection to “marginally” below 2 percent from 2.5 percent, Noonan said in an interview late yesterday in Galway, western Ireland. The new forecast, due for release next month, would mark the second reduction to 2012 projections since Ireland’s European Union-led bailout in November.
“The mark-back seems to be about” 0.5 percentage point “and we certainly can cover that in terms of fiscal adjustment,” Noonan said. “It is not so long ago since Germany was growing at 4 percent and it seems to have slowed. The U.S. seems to have paused as well but I don’t think we’re going into a double-dip recession.”
Ireland has pushed through 21 billion euros ($29.6 billion) of budget cuts since it entered recession in 2008, following the collapse of a domestic real-estate bubble. The finance minister of six months said he may seek a “bit more” than 3.6 billion euros of spending cuts and tax increases in 2012 to ensure Ireland hits its deficit target of 8.6 percent of GDP from 10 percent this year.
Ireland’s economy has relied on global demand to bolster export growth as consumers hold back spending. The country’s trade surplus widened to a record in June, driven by exports of dairy, medical and pharmaceutical products. Ireland’s central bank forecast economic growth of 0.8 percent this year, the first expansion since 2007, on the assumption that rising exports will help counter a slump of domestic demand.
Irish 10-year yields have dropped to 8.7 percent from 14.04 percent on July 18.
“The agreed government position is that we’d get to a target of 8.6 percent and we would need to change policy to go beyond that,” Noonan said. “But I am not ruling it completely out because circumstances are changing very rapidly in Europe at present.”
Dermot O’Leary, chief economist at Dublin-based Goodbody Stockbrokers in Dublin, said a reduction of 1 percentage point would “impact the budget deficit by 0.4 percentage point.” That’s why the fiscal adjustment will need to be increased to at least 4 billion euros, or 2.6 percent of GDP, to meet the targets for next year, he said.
Prime Minister Enda Kenny signaled in an interview with Dublin-based broadcaster RTE Radio today that the government may renegotiate income tax targets set as part of Ireland’s 85 billion-euro aid package.
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