Irish Economy: The Central Bank said today in its first Quarterly Bulletin of the year, that the economy appears to be close to the trough of the downturn in output terms, although some weakness will persist into the first half of this year, and there are likely to be further employment losses. Recovery, when it emerges, is likely to be gradual and modest. The Bank said although data for the final quarter of 2009 is not yet available, aggregate income in the economy is estimated to have declined by around 11 per cent last year in GNP terms, following a decline of just under 3 per cent in 2008. Carryover effects, and the likelihood that weakness in economic activity may continue into the first half of this year suggests that a further annual average contraction of around 2 per cent in GNP (gross national product - - this metric adjusts for the profits of the dominant multinational sector) and 1 per cent in GDP (gross domestic product) is in prospect for 2010 as a whole.

Positive growth, on an annual basis, is expected to return from the second half of this year, and on a full-year basis in 2011.

Growth next year is likely to be moderate, however and in the range of 21⁄2 to 3 per cent.

The Bank says unwinding the imbalances created during the boom years will continue to be a drag on economic activity for some time, suggesting that a broadly based recovery will take some time to emerge. It acknowledges that a "solid start has been made, especially in budgetary measures, but recovery will also be contingent on making further progress in overcoming the budgetary and broader economic and financial challenges that Ireland faces." It says a reversal in wage competitiveness losses will also be key: given the declining price level during 2009 this necessarily entails some nominal wage reductions, as are already being implemented in parts of both public and private sectors.

The Bank says the recovery across the major industrialised economies remains somewhat fragile and uneven. Moreover, there are concerns as to the extent to which the emerging global recovery is dependent on a sizeable fiscal and monetary stimulus and other temporary factors. Notwithstanding this, however, the consensus of the main international forecasting agencies is that, following a sharp contraction in 2009, activity is projected to expand moderately in Ireland’s main export markets this year. Against this background, exports are forecast to grow modestly in 2010.

The Bank says the contraction in consumer spending is set to gradually come to an end, but the outlook for investment remains unfavourable, as the ongoing adjustment in the construction sector continues.

The Central Bank says overall, the near-term outlook remains challenging. Nevertheless, in terms of medium term potential, the economy retains some important strengths — such as a significant degree of flexibility and a highly-skilled and educated labour force.

The weakness in aggregate demand last year was reflected in extremely challenging labour market conditions. Employment losses were widespread averaging about 8 per cent. The impact of rising emigration and falling labour market participation on labour supply slowed the rise in unemployment, which averaged just below 12 per cent last year. This trend is expected to continue in 2010, limiting the increase in the unemployment rate to an average of about 131⁄2 per cent despite a decline in employment of about 33⁄4 per cent.

The Euro Harmonised Consumer Prices inflation rate is expected to average -1.1 per cent in 2010.