Irish Economy 2011: The ESRI (Economic and Social Research Institute) says in its Quarterly Economic Commentary, Winter 2010, published today, that rates of growth in 2011and 2012 will be sluggish, while net emigration in 2009/2012 will rise to 135,000 people.
The institute sees GDP (gross domestic product) growing by 1½% in real terms in 2011 and by 2¼% in 2012. The corresponding figures for GNP (gross national product, lower than GDP by about 20%, mainly because of an adjustment for profits made by foreign firms) are ¼% in 2011 and 1 ½% in 2012. Following the pattern of 2010, the growth which is envisaged for 2011 and 2012 is made up of a strong export performance together with further contractions in domestic demand.
Exports are forecast to grow by 6% in 2011 and by 5% in 2012. The economists, Prof. Alan Barrett, Dr Ide Kearney, Thomas Conefrey and Cormac O'Sullivan, say that by contrast, consumption is expected to fall by ¾% in 2011 and by a further ½% in 2012. On-going uncertainty with respect to job stability, wages and taxation are likely to act against any rebound in consumption spending over the forecast horizon.
Government purchases of goods and services and public investment are expected to continue shrinking in both 2011 and 2012. The banking crisis as being a key factor in the continued depressed level of both consumption and investment through an absence of affordable credit.
The institute says while its forecasts envisage positive growth in both GNP and GDP for the first time since 2007, the rates of growth are still slow. For 2011, it sees the growth in GNP and GDP being accompanied by continued employment falls as output growth is achieved through productivity growth. Employment is expected to average 1.83m in 2011, down 1¼% on the 2010 number. Employment growth in 2012 is expected to be at just 5,000 - - tiny relative to the labour force of over 2m.
The rate of unemployment is expected to average 13 ½% in 2011 and 13% in 2012 while the net outflow of people between April 2010 and April 2012 is forecast to be 100,000. When combined with the outflow which was recorded for the year ending April 2010, this would imply a net outflow of 135,000 between 2009 and 2012. The highest rate of net outflow in the 1980s occurred in 1989 when the rate reached 44,000. Hence, the forecast for an average annual net outflow of 50,000 between April 2010 and April 2012 is high in historic terms, albeit against a larger population base.
The ESRI says Consumer Price Index (CPI) will average 2% in 2011 and 1 ½% in 2012. For Harmonised Index of Consumer Prices (HICP), it expects 1% in both 2011 and 2012. Wages are expected to fall by 1% in 2011 and for them to remain constant next year.
Looking at the housing market, the ESRI say the contraction continued in 2010. On an annualised basis, planning permissions for houses and apartments stood at 20,493 in 2010 Q3, 58.5% lower than in 2009 Q3. Completions are down 47.5% and registrations are down 50% on the same basis. The ESRI estimates that house completions reached 14,500 by the end of 2010, which is an increase on our previous estimate. Activity is expected to remain weak in 2011 and 2012, with 10,000 completions forecast for each of those years.
The institute says the outlook for OECD output growth in 2011 has been revised downward from 2.8% to 2.3%. The evidence for a protracted recovery in America, greater austerity in some European economies and the need for household deleveraging across the developed world are expected to depress economic activity throughout the year. With economic growth expected to remain robust in emerging economies, the pattern of the global recovery looks likely to become more unequal in 2011. In 2012, a return to more robust growth is expected in America and Europe, resulting in OECD output growth of 2.8%.
The performance of Irish exports remains strong as the recovery in the global economy continues, and this trend is set to continue on the basis of the growth forecasts for 2011 and 2012. THe ESRI says, crucially, future export potential depends on the fortunes of our main trading partners in America, Britain and the Eurozone.
In America, consumer demand is expected to record weak growth due to the ongoing problems of high unemployment and high household debt, but early indicators for 2011 suggest a brighter outlook than was envisaged in mid 2010. In Britain, consumption remained robust throughout the recession, but with government austerity measures set to increase in 2011, the prospects for significant growth in consumption over the forecast period is unlikely. In Europe, which accounted for nearly 43% of total Irish exports in the first three quarters of 2010, demand has grown strongly as the core economies begin to restock, but recovery is being hampered by continuing difficulties in the financial markets. The Institute says if considerable steps are taken in 2011 and 2012 to address these issues, the European market could experience a better balanced and more sustainable recovery.
The economists say the first point that should be addressed with relation to the EU-IMF bailout agreement is how the forecasts contained here compare to those contained in Budget 2011. They says: "Our forecasts allow us to assess whether we think the outcomes for 2011 and 2012 that were envisaged in Budget 2011 are likely to be met. This comparison suggests that there may be slippage.
Looking firstly at the GDP forecasts, Budget 2011 contained forecast growth rates of 0.3%, 1.7% and 3.2% for the years 2010, 2011 and 2012 respectively. Our forecasts are for GDP growth rates of ¼% in 2010 followed by 1½% in 2011 and 2¼% in 2012.
Budget 2011 forecast a GDP level of €168 billion in 2012; based on our forecasts, we expect the level to be €165 billion, a difference of 2%. Partly as a result of our lower forecasts for GDP growth, the debt to GDP ratio that emerges from our forecasts is higher than that in Budget 2011. We forecast that the debt ratio will be 104.5% of GDP in 2012 while the forecast figure in Budget 2011 was 102%.
Given the uncertainty which surrounds all forecasts, we would not place too great an emphasis on the difference. Instead, we would see it as a reminder of the on-going challenges which the country faces in restoring the public finances to a sustainable path. In that context and as discussed above, tax revenues seem to have stabilised during 2010.
Under our forecasts, the deficit is below 10% of GDP in 2011 (9½.%), an important psychological threshold. It falls to 7¾% in 2012 so the trajectory is in line with achieving a 3% deficit by 2015/2016. We should also note that under our forecasts, the balance of payments surplus exceeds 2% of GNP in 2012. As this points to a paying down of external debt by the public and private sectors combined, it can be viewed as a positive sign for the economy."
Quarterly Economic Commentary, Winter 2010 Prof. Alan Barrett, Dr Ide Kearney, Thomas Conefrey and Cormac O'Sullivan (ESRI)
The ESRI's summary of some of the main findings of the analysis include the following:
This Quarterly Economic Commentary includes the following Research Bulletin articles:
"A Good News Story About Irish Health Care", Layte, Richard, ESRI Research Bulletin No. 2010/04/01.
"On International Equity Weights and National Decision Making on Climate Change," Anthoff, David, Tol, Richard S J, ESRI Research Bulletin No. 2010/04/02.
"Progression in Higher Education: The Value of Multi-Variate Analysis," McCoy, Selina, Byrne, Delma (National University of Ireland, Maynooth), ESRI Research Bulletin No. 2010/04/03.
"Cultural Differences in Parenting Practices," Murray, Aisling, ESRI Research Bulletin No. 2010/04/04.
"Public and Private Utilisation of In-Patient Beds in Irish Acute Public Hospitals," O'Reilly, Jacqueline, Wiley, Miriam M, ESRI Research Bulletin No. 2010/04/05.
The articles are available on the ESRI website.
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