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The International Monetary Fund
(IMF) has cut its Irish GDP (gross domestic product) growth forecast in half and
sees growth in 2011 at 0.5%, compared with a forecast of around 1% late last
year. It says the global economic recovery is gaining strength, with world
growth projected at about 4½% in both 2011 and 2012, but unemployment remains
high, and risks of overheating are building in emerging market economies.
IMF economists in the bi-annual
World Economic Outlook, say a decision on changing the interest rates
charged to countries under the EU's bailout rules is 'urgently needed'.
The IMF says that Ireland's unemployment rate will average 14.5% this year,
falling to 13.3% in 2012. Inflation in Ireland is forecast to be 0.5%, compared
with a Eurozone average of 2.3%.
Earlier Monday, the Bank of Ireland said the past month has thrown up two
surprising and unwelcome data releases in Ireland. The first was that the
unemployment rate over the past six months has been much higher than previously
published, on the basis that the labour force stopped falling in the final
quarter of 2010. This in turn implies that the scale of net emigration of late
is much lower than previously thought, contrary to popular belief. The bank says
it is doubtful whether this marks a clear break in the previous trend but the
near-term impact is that the unemployment rate in 2011 is now expected to
average 14.4% from 13.6% last year, albeit having probably peaked in recent
months. BoI said the second data release showed that nominal GDP was deemed to
have fallen by a massive 6.6% in just three months. The decline in real GDP was
also a substantial 1.6%, driven by falling exports, contrary to the trend over
the rest of the year.
As a result, the economy entered
2011 in a weaker state than most expected and as a consequence BoI also revised
down its GDP growth forecast for the year to a modest 0.5%, in line with the
In the Bank of Ireland’s
Quarterly Economic Outlook published today, Dr. Dan McLaughlin, group chief
economist said: “The Irish labour market has been
characterised by falling employment and a contracting labour force for the past
three years but that pattern was partially arrested in the final quarter of
2010, as revealed in the Quarterly National Household Survey. The data showed
that the labour force was broadly unchanged in the quarter when seasonally
adjusted, in turn implying that the pace of net emigration had slowed
appreciably, which is at variance with the widely held popular view that there
is a substantial outflow of Irish nationals. Employment continued to fall,
however, by 16,000 or 0.9%, with the result that the total unemployed jumped to
315,000 from 290,000 in the previous quarter, pushing the unemployment rate up
to 14.7% from 13.7%. This was substantially higher than the previously published
monthly estimates, (averaging 13.6% in Q4), with significant knock-on effects on
the subsequent monthly data and on forecasts for this year as a whole."
economic recovery is gaining strength, with world growth projected
at about 4½% in both 2011 and 2012, but unemployment remains high,
and risks of overheating are building in emerging market economies,
the IMF said in its latest forecast.
High commodity prices
present new policy challenges, while old challenges -- fiscal
and financial repair and reform and the rebalancing of global
demand–remain work in progress.
improvement in financial markets, buoyant activity in many emerging
and developing economies, and growing confidence in advanced
economies, economic prospects for 2011–12 are good,” the IMF said in its April 2011 World Economic
Outlook (WEO). However, disruptions to oil supply pose new
risks to the recovery.
turned to commodity prices,” said Olivier
Blanchard, chief economist at the IMF. “Commodity prices have
increased more than expected, reflecting a combination of strong
demand growth and a number of supply shocks. These increases conjure
the specter of 1970s-style stagflation, but they appear unlikely to
derail the recovery,” he told a press conference in Washington.
Real GDP in advanced
economies and emerging and developing economies is expected to
expand by about 2½% and 6½%, respectively.
In the report released
on April 11, it said financial conditions continue to improve after
the global crisis, although they remain unusually fragile.
In many emerging market
economies, demand is robust and overheating is a growing policy
concern. Developing economies, particularly in sub-Saharan Africa,
have also resumed fast and sustainable growth. But the IMF said new
risks have emerged:
Rising food and
commodity prices pose a threat to poor households, adding to
social and economic tensions, notably in the Middle East and
Oil prices have shot
up because of unrest in the Middle East. The WEO said
disruptions so far would have only mild effects on economic
activity but, given falling spare oil production capacity, risks
are on the downside.
The IMF said that
the earthquake and tsunami in Japan had exacted a terrible human
toll but that its global macroeconomic impact would be limited.
The IMF said many old
policy challenges remain unaddressed even as new ones arise. In
advanced economies, weak sovereign balance sheets and still-moribund
real estate markets continue to present major concerns, especially
in certain euro area economies.
recovery in advanced economies will require keeping interest rates
low as long as wage pressures are subdued, inflation expectations
are well anchored, and bank credit is sluggish. At the same time,
public spending needs to be placed on a sustainable medium-term path
by implementing fiscal consolidation plans and entitlement reforms,
supported by stronger fiscal rules and institutions.
The WEO said this
is particularly urgent in the United States to stem
the risk of globally destabilizing changes in bond markets. “To make a sizable dent in the projected
medium-term deficits, broader measures such as Social Security and
tax reforms will be essential. “
It said that in
Japan, the immediate budgetary priority was to support
reconstruction. Once reconstruction efforts are under way and the
size of the damage is better understood, attention should turn to
linking reconstruction spending to a clear fiscal strategy for
bringing down the public debt ratio over the medium term.
In the Eurozone,
despite significant progress, markets remain apprehensive about the
prospects of countries under market pressure. For them what is
needed at the Eurozone level is sufficient, low-cost, and flexible
funding to support strong fiscal adjustment, bank restructuring, and
reforms to promote competitiveness and growth. More generally,
the IMF says greater trust needs to be reestablished in Eurozone banks through
ambitious stress tests and restructuring and recapitalization
CNBC: IMF Upbeat on Global Economy:
The IMF said the
challenge for many emerging and some developing economies is to
ensure that present boom-like conditions do not develop into
overheating over the coming year. Inflation pressure is likely to
build further as growing production comes up against capacity
constraints, with large food and energy price increases raising
pressure for higher wages. The WEO published a chart showing
countries in the Group of Twenty (G-20) with signs of overheating).
Real interest rates are
still low and fiscal policies appreciably more accommodative than
before the crisis. Appropriate action differs across economies,
depending on their cyclical and external conditions. However, a
tightening of macroeconomic policies is needed in many emerging
markets. Many emerging and developing economies will need to provide
well-targeted support for poor households that struggle with high
food prices, the IMF said.
The IMF said over the
medium term, greater progress in advancing global demand rebalancing
is essential to put the recovery on a stronger footing. This is will
require action by many countries, notably fiscal adjustment in key
economies with external deficits, and greater exchange rate
flexibility and structural reforms that eliminate distortions and
boost savings in key surplus economies.