Irish Economy 2011: The Central Bank said today that the already evident divergence in sectoral performance across the economy is set to continue, with economic growth this year likely to be largely confined to the export sector. Consumer spending is due to fall again this year.
In the Quarterly Bulletin (due to be accessible here from 11:00 am) for the first quarter of 2011, the Bank says the gradual return to overall output growth will reflect the growing contribution from the external side beginning to outweigh the still negative - - although less so – impact of domestic factors.
Today's report says although the global economic recovery slowed in the second half of last year, the outlook is for global growth momentum to recover gradually as this year progresses. Projections from the main international forecasting agencies suggest that, while growth in Ireland’s main export markets will be lower in 2011 than last year, it will still be sufficient to support relatively strong export growth.
With Irish import growth likely to remain relatively sluggish, the net contribution to growth from external trade will likely be significant. The overall current balance is also projected to move into surplus this year.
The Bank said the prospects for domestic demand remain subdued. While the contraction in consumer spending is beginning to moderate, the underlying determinants of consumption are likely to remain weak. With employment projected to continue to fall slightly in 2011, with the effect of higher taxes on disposable incomes, and with households seeking to reduce their indebtedness, consumer spending is forecast to contract further this year.
Beyond 2011, the recovery in consumption is likely to be slow and gradual.
Labour market trends support this view, with only a modest rise in employment projected for next year. With respect to investment, the Bank said while the rate of contraction is set to moderate, both the ongoing adjustment in the construction sector and planned adjustment in public capital spending imply that the outlook for 2011 is for a further marked fall in spending.
The Central Bank says its central scenario is that, after three years of significant contraction, the Irish economy will begin to grow gradually again in 2011. Although the beginnings of a turnaround in employment levels cannot be expected until late this year, recovery in overall economic activity is expected to gain momentum during 2011 and 2012.
In 2011, GDP (gross domestic product) growth is projected to be in the region of 1%, rising to around 2.3% in 2012. GNP ((gross national product, excluding the profits of the dominant multinational sector) is expected to be broadly unchanged this year, with a return to positive growth, in the region of 1.5%, projected for 2012.
The Bank says these projections represent a significant downward revision to those published in the last Quarterly Bulletin, which were compiled on the basis of a much smaller €3bn fiscal consolidation in 2011 than the one currently budgeted, and on the basis of continued market access to funding on reasonable terms. The Central Bank says while this is the Bank’s central scenario, a range of both stronger and weaker outcomes are, of course, quite plausible.
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