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Following the Government’s recent announcements about budget consolidations and the cost of the bank bailout, Ernst & Young (E&Y) has downgraded its latest economic growth forecast for Ireland by 1.7pc.
The company also cited a rise in net outward migration as a reason for the revised forecast. In the annual Economic Eye Winter Forecast, GDP growth for 2011 has been revised down from 2.8pc to just 1.1pc. Ireland therefore will continue to have one of the worst GDP growth rates in the euro zone.
The report confirms that Ireland is developing a ‘two speed’ economy as exports continue to rise in response to global demand for Irish goods and services, while the domestic economy continues to struggle in the face of public spending cuts, weakness in the construction sector and pressures on consumer spending.
The full year GNP forecast for 2010 has also dropped by 4.2pc, according to E&Y.
The report predicts that Ireland will emerge from recession in 2011. However, it warned the public may not feel the effects of this emergence because of rising unemployment numbers.
Neil Gibson, senior advisor to the Economic Eye, said, “This downgrading is a reflection of the severity of the recession with a recalculation of Ireland’s GNP growth for 2010 – down by 2.9pc from our summer forecast.
“The latest forecast highlights the extent to which the Irish domestic economy has suffered in the last 12 months in contrast to the external environment which has held up better,” continued Gibson.
Ireland are expected to have one of the highest export to GDP rations in the developed world with forecasts stating exports will equate to 100pc of GDP by the end of this year.
The measure is a significant increase when compared with 2005 when the figure was 80pc.
Migration flows have reversed sharply in Ireland in the past two years, with Ireland losing more than 5pc of its labour market. A fall of 110,000 led to a net outflow of 35,000.
Gibson says, “House prices and overall economic growth will be severely impact by the subsequent fall in overall demand, consumer confidence and government investment, as a result of this outward migration trend.”
House prices will continue to contract for the remainder of the year and in 2011, said the report, and are unlikely to regain their peak values before 2010.
The Economic Eye is not confident that Ireland’s budget deficit will fall to the European Commission’s target of 3pc of GDP by 2014. It says the more realistic figure is 5.6pc of GDP.
Gibson concludes, “Despite the difficulties that still face the Irish economy in 2010, the outlook for a return to relatively strong rates of GDP growth in the medium term, well above the growth expectations for Greece and Portugal, is encouraging. This is premised on Ireland’s core economic and competitiveness fundamentals and the fiscal measures being taken.
"There are however major risks to the growth outlook in the medium-term. It is against this difficult backdrop of economic recession, cost of government debt and rising unemployment, that the December budget, which will be crucial to Ireland’s short and medium-term economic prospects will have to be set.”