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The ESRI has cut its forecasts for growth in the Irish economy and has called on the Government to reduce its budget deficit by more than the €3.6bn required by the EU-IMF and to aim for €4bn in cuts in the next Budget.
Issued today, the institute’s quarterly economic bulletin notes that the international economic situation has become more uncertain, as the recovery in the US and the UK has slowed down, and eurozone output growth in the first half of the year was less than expected. It says anxiety about overall debt levels of many of the eurozone economies has contributed to the financial turmoil.
Domestic demand is expected to remain “very weak” this year, with household expenditure, investment and government expenditure continuing to fall. However, the economic think-tank is expecting investment in machinery and equipment to rise sharply this year and next.
The ESRI is now forecasting that GDP in Ireland will increase by 1.8pc this year and by 2.3pc in 2012. In May, it had predicted 2pc growth this year, rising to 3pc in 2012. It says the rate of unemployment will be 14.3pc this year, rising to 14.5pc in 2012.
“The public finances are likely to remain within the targets set for the budget deficit, with revenue perhaps slightly better and expenditure slightly less than set out in the budget and in subsequent budget documents,” says the ESRI. “The overall targets for 2012 are more or less predetermined but we think that it might be prudent to overachieve slightly as a precautionary measure.”
The bulletin also recommends increasing competitiveness through reducing prices to help the economy to grow faster. Such price reductions would impact on wage levels and other general costs facing firms, it says.