Irish Economy: The Central Bank said in its Quarterly Bulletin today, that for next year as a whole, a decline in activity of about 2.7 per cent in GDP and 3.5 per cent in GNP terms is projected. This outlook is contingent on a gradual recovery in world demand next year. By contrast, the contraction in domestic demand is likely to continue. It says with forward-looking indicators pointing to a further contraction in housing output and declining disposable incomes likely to depress consumer demand, there is little prospect of any recovery in domestic demand before 2011. Property-related banking loans were at 61% of total bank loans at the end of March 2009.
The Central Bank said that the economy will shrink by 8.3 per cent this year and by an expected 2.7 per cent in 2010.
The Bank says that by 2011, the rebalancing of activity in the economy is likely to have run its course and the prospect of some recovery in domestic demand together with a further rebound in external demand should support a return to modest growth overall. The sharp
decline in output over the past two years has had severe consequences for the labour market.
The Central Bank forecasts an unemployment rate of 12.8% for this year, but says this will deteriorate to 15% in 2010.
It says for 2010 and in the years to 2013, "considerable additional consolidation measures will be needed along the lines of the proposed measures in the supplementary budget, which amounted to approximately 21⁄2 per cent of GDP on average each year if fiscal balance is to be restored within this timeframe."
The Bank says inflationary pressures have eased significantly in the domestic economy, not least in the labour market, with increasing evidence of nominal wage reductions and other cost saving measures. These reductions, although perhaps contributing to the depressed state of domestic demand in the short term, represent a necessary adjustment to Irish cost competitiveness, which should support a sustainable export led recovery in aggregate demand when external conditions improve.
